Tuesday, August 26, 2014

Argentina: Update--Fernández Gov't Revokes Bank of NY-Mellon to Conduct Business in Nation

According to The Latin American Tribune, Argentine President Cristina Fernández’s government on Tuesday (August 26) has revoked Bank of New York-Mellon’s authorization for operating in Argentina, a move that follows the financial institution’s decision to block an interest payment Buenos Aires attempted to make to the bondholders.

The superintendent of financial and foreign exchange institutions has revoked the authorization for the representation of BoNY in Argentina,” Cabinet chief Jorge Capitanich said in his daily press conference.

He said the decision was due to the failure of BoNY representatives Mariel Veronica García Sturzenegger and María de la Cruz Solares to comply with the law and pay the holders of restructured Argentine government bonds.

The superintendent also justified the move on the grounds that the bank had provided no local financing since January 2013.

Under the terms of the 2005 and 2010 debt restructurings that followed Argentina’s record-setting 2001 default, the Bank of New York-Mellon was the trustee responsible for processing payments to those so-called “exchange bondholders.”

But it blocked Argentina’s most recent payment, due on June 30, in compliance with a ruling by a New York judge who decided in favor of a small group of holdout hedge funds that had sued Buenos Aires for full payment on bonds they bought at large discounts in 2002.

As part of his 2012 ruling, US District Court Judge Thomas Griesa prohibited Argentina from making payments to the exchange bondholders until it pays the holdouts, led by Elliott Management Corp.’s NML Capital Ltd unit and Aurelius Capital Management.

Argentina’s appeal of Griesa’s ruling reached the US Supreme Court in June of this year, but the justices declined to hear the challenge.

Argentina then entered into a fresh default when the 30-day grace period for its June 30 scheduled interest payment expired without it having reached a settlement with the holdouts.

COMMENT: The Fernández government’s termination of the Bank of New York and Mellon’s privileges to operate in Argentina will only further complicate the legal dispute underway between Washington and Buenos Aires and potentially place in jeopardy a continuing adversarial relationship that potentially disrupt conventional trade between the two nations.

Fernández’s government has severely criticized against BoNY-Mellon in recent weeks, saying it has failed to comply with its obligations as a trustee.

Jorge Capitanich also confirmed that a group of exchange bondholders has sued BoNY for not processing the payment that Argentina deposited with that institution in late June.

Those plaintiffs include Quantum Partners and Hyman Capital, which filed their suit in the UK, according to media reports.

Argentina defaulted on roughly $100 billion in debt in December 2001, the largest sovereign default in world history, amid a financial meltdown and economic depression.

More than 92% of Argentina’s creditors accepted steep reductions in the 2005 and 2010 debt re-structurings.

The origins of the debt problem go back to Argentina’s 1976-1983 military junta, which presided over a 465% expansion in public indebtedness.