Argentina Bans Citi From Market Operations on Holdout Agreement

Argentina suspended Citigroup Inc.’s local subsidiary from operating in the country’s capital markets, saying the bank violated local law by striking a deal with holdout creditors who are embroiled in a legal battle with the South American nation.

An agreement under which creditors led by billionaire Paul Singer and U.S. District Court Judge Thomas Griesa will allow the bank to make two interest payments violates Argentine law, the securities commission said in an e-mailed statement. The ban doesn’t affect Citibank Argentina’s commercial banking business and Caja de Valores SA has been appointed to administer and process payments affected by the measure, the commission said.

“The signed agreement especially affects bondholders in that it doesn’t guarantee their payment and excludes the legitimate right Citibank Argentina has to appeal judicial decisions that affect bondholders compromising compliance with Argentine law,” the commission said in the statement. The accord “leaves the rest of the institutions involved in the process of bond payments unprotected.”

Citibank Argentina wasn’t immediately available for comment.

The bank has found itself caught between obeying a 2012 ruling by Griesa ordering the country to only pay holders of restructured bonds if it also pays holdout creditors from the 2001 default in full. Citi said last week it would quit the custody business in Argentina after the government threatened to revoke its operating license if it didn’t handle the payments.

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 said in a statement that creditors reached an agreement with Citibank NA last week, adding that it applies only to Citibank NA, meaning that payment could be stopped at other points in the process.

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