Obeying Griesa would put Citi in “an untenable and extremely dangerous position — which could lead to consequences as serious as the loss of Citibank Argentina’s banking license and its takeover by the Republic,” Citi lawyer Karen Wagner, of Davis Polk, wrote last week in a brief.

Tuesday, August 19, 2014

Citibank fears losing local banking licence

Citibank was part of the negotiations with holdouts to avoid Argentina’s default.

Bank foresees scenario if it doesn’t pay creditors

Obeying United States Judge Griesa’s order and not paying billions of dollars of bonds issued by Argentina under New York legislation could lead Citibank to lose its banking license in Argentina and the US$2 billion it has in local deposits, according to a brief filed by the bank last week but divulged yesterday.

Obeying Griesa would put Citi in “an untenable and extremely dangerous position — which could lead to consequences as serious as the loss of Citibank Argentina’s banking license and its takeover by the Republic,” Citi lawyer Karen Wagner, of Davis Polk, wrote last week in a brief.

Citigroup and Argentina were granted on Friday an expedited appeal of an order from Griesa that barred future payments to holders of certain US dollar-denominated restructured bonds, after the judge allowed the bank to make a one-time payment. Both appeals will be considered by the 2nd US Circuit Court of Appeals in New York.

The appeals court accepted to “consolidate” the presentations issued by Argentina and Citibank and called a hearing on September 18 to listen to the parties arguments on the case. The objective is that the court discusses Griesa’s decision before it interferes with a US$186 million payment due on September 30 of interests of the Par bond. If the government fails to issue such payment, the default would be expanded. Nevertheless, there’s expectation that a positive ruling of the appeals court could allow the government to fulfill the payment.

Loosing its banking license would be a mayor concern for Citibank due its important retail banking presence in Argentina and throughout South America. The bank’s revenue from its Latin America operations is about 18 percent of its overall revenue, according to the New York Post. Citybank was one of the international banks that tried unsuccessfully to reach a deal with “vulture funds” to avoid a default in Argentina.

In June, Argentina deposited US$539 million in Bank of New York Mellon Corp’s account at the Central Bank of Argentina, earmarked for bondholders who participated in sovereign debt exchanges in 2005 and 2010. It also deposited funds with Citibank Argentina. But Griesa blocked the payments, saying Argentina’s actions were an “illegal” violation of his prior orders.

Herald with online media