Citibank Argues It’s Stuck Between Argentina and Judge

By Bob Van Voris

Citibank N.A. is set to tell an appeals court it faces “grave sanctions” from Argentina unless it defies a U.S. judge’s order blocking it from making payments to holders of $8.4 billion of the country’s bonds.
U.S. District Judge Thomas Griesa in Manhattan barred Citibank’s Argentina branch from forwarding a $5 million interest payment due Sept. 30 to the bondholders if the South American nation continues to refuse to make payments on its defaulted debt.
If it doesn’t pay, Citibank claims, the branch and its executives face possible criminal and civil penalties, including the loss of its banking license and takeover by Argentina.
“Citibank cannot comply with
both of these directives -- one from a United States court and one from the sovereign state in which its branch operates,” the bank, a unit of New York-based Citigroup Inc. (C), said in a filing with the U.S. Court of Appeals in Manhattan.
Griesa’s July 28 order is one in a series barring Argentina from making payments on its performing debt unless it also pays $1.5 billion to a group led by Paul Singer’s NML Capital that owns its defaulted bonds. Argentina’s refusal to make that payment triggered a July 30 default when it was blocked from making a $539 million interest payment on its restructured debt.
A three-judge panel of the appeals court is scheduled today to hear the bank’s request to overturn Griesa’s order and permit it to make payments on the U.S. dollar bonds, which are payable in Argentina and issued under local law.

Fast Track

The court granted a fast-track hearing of the Citibank appeal before the Sept. 30 payment deadline.
Last week, Griesa denied an NML request that Citigroup be forced to give evidence Argentina is “coercing and pressuring” it to violate his order. Griesa said he wouldn’t rule on the subpoena while the bank’s appeal is being considered by the appeals court.
In a nationwide address Aug. 7, Argentine President Cristina Fernandez de Kirchner warned that Citigroup “must comply with the country’s laws.”
Argentina defaulted on a record $95 billion of debt in 2001. Holders of about 92 percent of the debt agreed to exchange their bonds for new ones at a discount of about 70 percent in two restructurings, in 2005 and 2010. Holdouts including NML sued, seeking full payment.
Standard & Poor’s declared Argentina in default on the restructured bonds July 30 after the government failed to make an interest payment as a result of Griesa’s order.