Argentina’s long rivalry with a group of foreign bondholders, whom it refers to as ‘vulture funders’, is threatening to derail Citibank’s operations in the country. A U.S. judge has ruled that Citibank cannot process bond payments for the Argentine government until it pays out bond payments that it owes to few foreign bond-buyers.
Outraged by this ruling, Argentina’s Economy Ministry has warned Citibank that it will lose its license to operate in the country if it stops processing bond payments.
“If the bank does not transfer the funds it will be breaking Argentine banking law. The Republic could revoke Citibank Argentina’s license to operate and even impose criminal responsibility upon its employees,” said a statement from the Argentine Ministry.
Citibank is now being caught in the crossfire. The U.S. banking giant is said to have over 2,800 employees in Argentina where it manages about 136,000 accounts.
This comes a year after Bank of New York Mellon (BoNY) exited Argentina after it found itself sucked into the same debt battle between the bondholders and the Argentine government. But in contrast to Citibank, BoNY had relatively few employees and a single office in Buenos Aires. The Argentine government revoked its license last August after it refused to process US$539 million in bond payments.
The current dispute centers around US$1.3 billion in bond repayments that Argentina owes to a few international hedge funds. The South American country has long argued that it cannot pay off the hedge funds as it violates the debt restructuring deal it signed with other creditors.
Argentina successfully persuaded most of the bondholders to accept a nearly 70% reduction in the value of their investments. More than 92% of creditors agreed to the offer, but a number of hedge funds refused and have sued the government in the U.S. courts.
A U.S. court ruled in favor of the hedge funds but as it struggles with growing debt, rising inflation and a weak currency, Argentina says such a huge payout would push its economy back into serious trouble.