The CNV securities regulator temporarily suspended Citibank Argentina yesterday from conducting capital market operations, a measure that does not affect its continued presence as a retail bank. At the same time, Caja de Valores, the country’s central securities depository, was appointed to administer Citibank’s accounts and process the corresponding debt payments.

Saturday, March 28, 2015

Gov’t suspends Citibank’s market operations

Citibank will now be reeplaced by Caja de Valores, the country’s central securities depository

CNV securities regulator says it is taking measure due to bank’s deal with holdout funds

The CNV securities regulator temporarily suspended Citibank Argentina yesterday from conducting capital market operations, a measure that does not affect its continued presence as a retail bank. At the same time, Caja de Valores, the country’s central securities depository, was appointed to administer Citibank’s accounts and process the corresponding debt payments.

The move was in response to what the CNV called Citigroup’s recent deal with the hedge funds that are battling the country in US courts as part of a long-running legal fight over unpaid debt that resulted from the country’s 2001 default.

The move was based on the Capital Markets Law, which allows for the suspension of financial entities when there are uncertainties over interest payments to bondholders.

“CNV decided to temporarily suspend Citibank Argentina from conducting capital market operations because it did not act according to local regulations when signing an agreement with the holdout funds,” the securities regulator said in a press release. “The agreement affects the interests of bondholders as it doesn’t assure the payment and rules out Citibank’s legitimate right to appeal eventual rulings that affect the interest of bondholders.”

Paul Singer-controlled NML Capital, as well as other major holdout funds, made a deal with Citibank this week regarding the legal dispute at New York courts over Argentine-law bonds. Citibank agreed to drop its appeal against holdout hedge fund NML in exchange for the holdout fund letting the bank exit its Argentine-based business as custodian of the bonds and to process the servicing of sovereign bonds held under Argentine law in March and June.

The deal was backed by Griesa, who had first rejected a request by Citibank to process some local bond payments despite the legal blockade against servicing the sovereign debt in the US banking system. Griesa has barred the servicing of most of Argentina’s debt coupons until the country reaches an agreement with the seven percent of bondholders who refused to accept restructurings carried out by the country in 2005 and 2010.

“The deal allows Citibank Argentina to process interest payments, due to expire on March 31 and June 30. But the agreement only applies to Citibank. That means it leaves all other entities that take part on the bond payment process without any protection,” the CNV said. “The deal also shows Citibank’s intent to leave its custody business in Argentina, creating uncertainties among bondholders. A future custodian wouldn’t be able to process payments as the deal only applies to Citibank.”

Citibank has said it plans to leave its custody business in Argentina as soon as possible after Griesa failed to authorize the bond payments. The bank tried to downplay its decision to leave part of its business in the country, saying that side of its business has “no meaningful connection with banking business in general,” and concerns only servicing assets belonging to clients.

The bank has portrayed itself as an innocent third party stuck with an untenable position between ignoring Griesa and putting its Argentina banking licence in jeopardy. In his March 12 order, Griesa expressed sympathy for Citigroup, but said Argentina’s recalcitrance caused Citigroup’s predicament, and that any third party that helps the country’s payment process would violate his injunction.

“The CNV appointed Caja de Valores to administer Citibank deposit accounts and to process interest payments. At the same time, the Merval benchmark stock index and the electronic open market (MAE)need to find the means to attend the requirements of Citibank clients and finish pending operations,” CNV said. “The suspension won’t affect Citibank’s banking operations.”

Sanction threats

President Cristina Fernández de Kirchner, Economy Minister Axel Kicillof and other federal government officials have warned the bank repeatedly over the past few days over possible penalties for violating Argentine financial regulations. The Economy ministry even sent a letter to Citibank asking it to report in no more than 48 hours its plans regarding the upcoming interest payments.

Last Wednesday, Kicillof said the CNV securities regulator and the Central Bank would examine the deal to determine officially if it was legal. In Kicillof’s view, the bank was trying to please “both God and the devil” by silently agreeing with NML Capital without assuming the consequences of breaking Argentine laws. The Economy Minister blasted the bank for even negotiating with Griesa.

“Reading the fine print of the deal, what we find is a possible trap aimed at scamming the bondholders,” Kicillof said. “Citibank is a financial entity operating in Argentina, it opened its first banking branch here in 1914 and as such it is subject to all of the country’s bank regulations. It is also authorized to operate in capital markets, which has its own regulations as well.”

Herald staff