BUENOS AIRES/NEW YORK, (Reuters) – Citigroup Inc will not appeal a U.S. judge’s ruling that it cannot process an Argentine sovereign debt payment if he helps the bank exit its custody business in the default-hit country as swiftly as possible, its lawyer said yesterday.
Citigroup’s stance paves the way for a showdown with leftist President Cristina Fernandez’s government, which is demanding the bank handle a March 31 payment or else risk sanctions, including the possible loss of its operating license.
Earlier yesterday, a senior source in Fernandez’s government said she would not allow Citigroup to walk away from its custody business, in which it acts as custodian of some Argentine bonds and processes payment for the ultimate security holder.
But Denis McInerney, a lawyer for Citigroup, urged U.S. District Judge Thomas Griesa in New York to suspend his order blocking payments to enable the bank to fulfill its obligations in Argentina while it exited its custody business there.
“Citibank wants to be completely out of this business and have nothing to do with processing payments on these bonds at any point ever again,” he said during the court hearing, according to a transcript.
He added he was “not certain” the bank could get out of it before a June 30 payment is due.
Citigroup has found itself at the center of a bitter court battle between Argentina and a group of New York-based hedge funds that were awarded full payment on their defaulted sovereign bonds by Griesa.
Griesa ruled Argentina must settle with the funds before it continue paying interest to the large majority of investors who accepted significant writedowns on the debt holdings after the country’s record default on $100 billion in 2002.
His ruling prompted Argentina to default on some of its restructured debt last July.
Ranked one of the world’s leading custodian banks, Citigroup on Wednesday portrayed itself as an innocent third party faced with the untenable choice of ignoring Griesa and being held in contempt of a federal U.S. court, or putting its license in jeopardy.
Its decision to exit its custodial business in Argentina may hamper the government’s efforts to pay bondholders and return to global markets.
