NY judge: Citibank dilemma poses no great threat

Staff Writer
Columbus CEO

NEW YORK (AP) — A judge told lawyers Wednesday that he doesn't think an effort by Argentina to pay some bondholders through a Citibank branch in the South American country will lead to a widespread effort to violate his orders.

U.S. District Judge Thomas Griesa commented at a Manhattan hearing as he declined to immediately grant a request for records by lawyers for U.S. hedge funds holding $1.5 billion in Argentine bonds. They want the bank to turn over documents that might reveal communications between Argentina officials and Citibank employees.

Attorney Kevin Reed, representing U.S. bondholders, warned the judge that Argentina "may well be engaged in a plan" to coerce the Citibank branch to move money before using similar tactics with other financial institutions to gut his orders requiring the republic to pay U.S. bondholders.

"If Citibank gets away with that here, that's the first crack in the dam," Reed said. "If they get away with it here, they may try it elsewhere."

"I don't see that," Griesa responded. "I do not see the large-scale threat that I think you're talking about."

The U.S. hedge funds led by New York billionaire Paul Singer's NML Capital Ltd. bought their bonds on the cheap and refused to trade them for bonds of lesser value after Argentina defaulted in 2001 after the country's economic collapse.

Argentina's leaders call the funds "vultures" because they refused to participate in swaps in 2005 and 2010 in which over 90 percent of Argentina's bondholders agreed to accept lesser-valued bonds.

Reed said attorneys for U.S. bondholders naively thought Citibank would welcome the effort to view its records so it could fend off Argentina's financial ploy, but Citibank instead refused to turn over anything.

The judge permitted Citibank to pay some bondholders through its Argentina branch at the end of July, but he said it was a one-time reprieve from his orders requiring Argentina to pay U.S. bondholders when it pays others.

A Manhattan federal appeals panel is scheduled to take up the Citibank issue next week, likely ruling before another payment is due those bondholders at the end of September.

Attorney Karen Wagner, representing Citibank, said the bank was dealing with unique issues concerning bonds that were issued in Argentina and were subject to Argentine laws, unlike bonds held by U.S. hedge funds whose funds would move through New York banking institutions and be subject to U.S. laws.

"There's no reason on earth to be doing this right now," she said of the request by U.S. bondholders to see the bank's communications.

Argentina defaulted in July on payments owed to many bondholders.