(Bloomberg) -- Citigroup Inc. said a U.S. judge is letting it process two bond payments in Argentina, giving it time to exit a custody business there that got stuck in the government’s legal battle with hedge funds.
Citigroup’s Argentine branch can fulfill its duty to process interest payments March 31 and June 30 on bonds issued under local law in U.S. dollars, the bank said Sunday. A judge in Manhattan signed the order March 20, allowing the payments “to the extent certain conditions are satisfied,” the bank said. The filing couldn’t immediately be confirmed in court records.
The ruling helps Citigroup extricate itself from a dispute over the country’s bond payments that was threatening to cripple one of the bank’s oldest overseas units. In 2012, the U.S. court barred Argentina from paying restructured bondholders unless it pays a group led by Paul Singer’s NML Capital that claims $1.7 billion in defaulted debt. Citigroup said last week it’s quitting the custody business in Argentina after the nation threatened to revoke the bank’s license if it didn’t handle the payments.
Citigroup told U.S. District Judge Thomas Griesa in a March 13 letter that it faced “catastrophic consequences if it doesn’t process the very small payment” of $3.7 million for clients on March 31. Last week, the bank said it “has been repeatedly subjected to the imminent threat of loss of its license in Argentina and criminal, civil and administrative sanctions by the republic, its regulators and its customers.”

‘Largely Unconnected’

The Citibank NA subsidiary had argued that the 2012 ruling blocking Argentina from paying holders of its performing debt didn’t apply to it. Griesa rejected the assertion, ruling March 12 that U.S. dollar-denominated bonds issued in Argentina under that country’s law are covered by the 2012 ban.
NML Capital and creditors reached an agreement with Citibank NA last week that heads off the bank’s appeal of the March 12 ruling, NML said in an e-mailed statement.
“Judge Griesa approved this agreement, which applies only to Citibank and was specifically tailored to address the unique circumstances facing Citi Argentina after Citibank announced it was exiting the custody business,” it said.
Citibank opened the Argentine unit, its first non-U.S. branch, in 1914, according to its website. It has 2,700 employees in the country and 70 branches, according to central bank data. Custody business accounts for about 2 percent of its net income, the firm said Sunday in a statement.
The business “by its very nature, is largely unconnected to the rest of Citi Argentina’s banking activities,” it said. “Citi has been an important contributor to the Argentine economy for more than 100 years and looks forward to continuing to play this vital role in the decades to come.”
The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Dakin Campbell in New York atdcampbell27@bloomberg.net
To contact the editors responsible for this story: Peter Eichenbaum atpeichenbaum@bloomberg.net David Scheer, Sylvia Wier