Argentina sees a 'scam' in Citigroup debt deal

Wed Mar 25, 2015 6:36pm EDT
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By Sarah Marsh and Richard Lough

BUENOS AIRES (Reuters) - A deal between Citigroup Inc C.N and a U.S. judge allowing the banking giant to process two Argentine debt payments and exit its custodian business in Argentina may violate the country's laws, Economy Minister Axel Kicillof said on Wednesday.

Argentina is concerned Citigroup's departure may further hamper the chances of debt interest payments on local law debt restructured after its record 2002 default reaching bondholders.

The bank, which acts as custodian of some Argentine bonds, had originally echoed Argentina's stance that the local law bonds should not be wrapped up in a U.S. court ruling barring Buenos Aires from meeting its restructured external debt dues.

When District Judge Thomas Griesa this month held firm that local debt payments were also blocked, Citigroup, frustrated at finding itself front and center of Argentina's debt battle, said it wanted out of its Argentina custody business. The subsequent deal with Griesa to process two payments this month and in June makes this easier.

"Reading the fine print of the deal, what we find is a trap possibly aimed at scamming the bondholders," Kicillof told a news conference.

In a further blow to Argentina's hopes of completing payments to local law investors, Griesa on Wednesday barred Belgium-based clearing house Euroclear from passing on funds to bondholders pending any further ruling from his court.

If some payments are allowed by the judge at a later date Euroclear will have to provide the litigating hedge funds with details on who will receive the coupon payments and when, the ruling stated.

The move is likely to strengthen Argentina's view that the deal with Citigroup is designed to smooth the bank's exit from its Argentine custody business - something the leftist government has said it will not allow.   Continued...

Window washers work above a logo of Citibank in downtown Buenos Aires March 17, 2015.   REUTERS/Enrique Marcarian