Griesa authorizes Citi to process payments of Argentine bonds

[forest444]

Source: Buenos Aires Herald

New York District Judge Thomas Griesa has authorized Citibank to process interest payments on US$2.3 billion of Argentina bonds due on March 31st. The order also authorizes the bank to process a future payment on June 30th, and compels the financial entity to get out of its custody business in the South American country.

Griesa had blocked payments from Citibank Argentina to bondholders following his sentence in favor of holdout tenants of Argentine debt. The judge ordered so-called “vulture funds” should be paid in full, blocking interest payments on Argentine denominated bonds until that sentence is met. Ranked one of the world’s leading custodian banks, Citigroup portrayed itself as an innocent third party faced with the untenable choice of ignoring Griesa and being held in contempt of a federal US court, or putting its license in jeopardy, as the Argentine government has threatened to cancel Citibank Argentina’s operating license if it refuses to process payments.

Citibank had said on Tuesday it planned to get out of the business of making bond payments for the country and transfer the responsibility to another entity. “Our custody business represents approximately 2 percent of Citi Argentina’s incomes and, by its own nature, does not have any relation with the rest of its banking activities. Citi has fulfilled a relevant role in Argentina’s economy for over 100 years and hopes to continue developing that role throughout upcoming decades,” a statement released by Citibank Argentina reads.

Read more: http://buenosairesherald.com/article/184937/griesa-authorizes-citi-to-process-payments-of-argentine-bonds

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Basically, the judge had been trying to block any and all bondholders from collecting on their Argentine bonds (as they have since 2005) in order to pressure Argentina to pay vulture funds a 1,600% return on their bonds. Buying bonds for the purpose of suing for more later is explicitly illegal under New York Law (and just about anywhere else in the world).

Good to see Citibank keeping Griesa honest.

[Little Tich]

1. Good.

It was about time!

[Judi Lynn]

2. What a surprise. This is good news. n/t

[quadrature]

3. 'payment in full' in largely an American concept ..

in other countries,
you should expect about a quarter
of your money back.

we are watching a
conflict of cultures

[forest444]

4. And a very hypocritical concept it is.

Because in the real world, bonds in the U.S. - both corporate and municipal - are rescheduled fairly frequently under court order, and with substantial "haircuts" in principal that can range from 25 to 75% or more. The haircuts allow defaulted debtors to resume payments to bondholders - and bondholders in turn obtain not only a resumption in payments they would have otherwise not gotten, but also higher interest on said bonds.

In Argentina's case the 10-13% interest these bonds have been paying has more than compensated for the 70% haircuts bondholders agreed to in 2005. Those who accepted the 2005 swap and held on to the bonds, moreover, have not only already recouped their investments by way of Argentine payments (and Argentina has never missed one since '05), the bonds themselves have more than doubled in value.

Argentina has already paid out $190 billion for bonds whose face value was $82 billion (and for which investors typically paid about half that much). Vulture funds, of course, have held out for even more - much more. In the case of the Cayman Islands-based NML Capital (who had Griesa block payments to holders of New York-Law bonds last July), the demand is $900 million for bonds purchased for $48 million. Their face value: about $220 million. Argentina has offered to reopen the swap for them despite domestic laws that forbid it, but to no avail.

Why? Besides being motivated by sheer malice (NML's principal, Paul Singer, is a right-wing extremist who was hoping to "punish" Argentina for having a center-left administration), NML needed a default because the valuable CDS insurance held against these bonds doesn't cash out unless a default is declared by the ratings agencies one way or another (which was in fact the case despite being that most of Argentina's bondholders are still collecting).

Now, to read much of what's written in the business press about this, you'd think none of this could ever affect U.S. taxpayers themselves. Think again.

Singer has already bankrupted Delphi Automotive (once the largest auto parts maker in the world) and Caesar's Entertainment using the same tactics; 50,000+ good jobs, right there. Atlantic City itself may soon follow. And remember the debt ceiling crises former GOP whip Eric Cantor was provoking at every turn? One of his closest backers was, why, Paul Singer. Now that Griesa gave vulture funds all the legal precedent they need (rewriting laws in order to allow holdouts to block everyone else's payments), what do you think will happen to the U.S. bond market if a default is manufactured in Congress?

A conflict of cultures would be putting it mildly.

[Judi Lynn]

5. Tremendous post. Thank you. n/t

[forest444]

7. My pleasure.

That compliment made my day, coming from you Judi Lynn. Thank you.

We're here on DU, after all, to discuss the truth - and goodness knows it ain't always pretty.

And speaking of things that are anything but pretty:

http://translate.google.com.ar/translate?hl=en&sl=es&u=http://www.infonews.com/2015/03/22/economia-191226-griesa-dio-marcha-atras-y-autorizo-al-citibank-a-pagar-bonos-argentinos.php%3Fid%3DcGzG54z&prev=search

[quadrature]

6. forest... I think it would be helpful..if you would ...

if you would add the Face Value, of the bonds.
to the discussion.

many people might not understand,
that this vulture fund payed about
5 dollars for a bond that has a face value
of $1000.

the concept of near-worthless bonds
may be difficult for
some people to grasp.

thanks

[forest444]

8. Agreed.

I'm on it.

Thanks, quadrature.

[forest444]

9. I should note, though,

that these bonds in particular aren't worthless at all. As Joseph Cotterill of the Financial Times noted about three weeks ago “Argentina finally made it: Argentina's 2033 restructured bonds are trading above par." Meaning, as you know, that they sell for more than 100 cents on the dollar.

It's just that vulture funds want 400 cents on the dollar - for bonds they didn't even buy from Argentina itself (in Singer's case they were purchased from a reseller for about 20 cents on the dollar in 2008, three years after Argentina emerged from default).

Buying bonds for the purpose of suing for more later is explicitly illegal under New York Law; but Griesa ruled that because the bonds were purchased "to make money (the ends), not for the lawsuit in itself (the means)", this law does not apply.

It's like telling a drug trafficker: "we realize you do this for the money, not the criminality in itself; your crimes are therefore not crimes at all."

The judge must be an avid Kafka reader, I'll give him that.