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Regulators Enter Citibank Argentina Building as Debt Feud Heats Up

  • Reuters

A woman walks by a Citibank branch in Buenos Aires, Argentina, March 17, 2015.

A woman walks by a Citibank branch in Buenos Aires, Argentina, March 17, 2015.

Argentine central bank regulators entered Citibank Argentina's headquarters on Monday, as the battle intensified between the government and a group of U.S. hedge funds who refuse to accept discounted payment terms on the country's defaulted debt.

Argentina's securities regulator said Citibank Argentina violated local laws by striking a deal with the hedge funds. It has suspended the bank from conducting capital market operations and stripped authority from its chief executive.

"There will be an inspection of Citibank Argentina today to ensure it is functioning," a central bank spokesman told Reuters. The job of the regulators will be to monitor operations, not take over management of the bank, the spokesman said.

Four inspectors wearing central bank lapel pins were later seen entering the bank's headquarters in Buenos Aires.

The situation stems from a legal feud being played out in the U.S. federal courts between President Cristina Fernandez's government and New York-based hedge funds over the payment terms offered in 2005 and 2010 bond restructurings.

U.S. Judge Thomas Griesa has awarded the hedge funds full payment on the defaulted debt and barred Argentina from servicing its restructured debt until it settles with the creditors.

Fernandez refuses to grant the funds better terms than the steep payment cuts accepted by most bondholders in 2005 and 2010. She often derides the funds as "vultures" who bought Argentine debt at deeply discounted prices and are willing to bankrupt the country in their pursuit of astronomical profits.

Argentina has insisted that Citibank Argentina, which portrays itself as an innocent party caught up in the legal battle, keep processing payments.

Citibank Argentina agreed with the hedge funds not to appeal a U.S. court ruling that said interest payments on restructured bonds could not be processed if the bank was allowed to make two one-off payments to help it exit its local custody business.

On April 1, the central bank said Gabriel Ribisich, the head of Citibank Argentina, could no longer represent the bank because he "ignored Argentina's legal framework regarding sovereign debt restructuring."

Citigroup, Citibank Argentina's parent group, did not immediately respond to requests for comment on Monday. Citibank Argentina's next move is expected to be to name a replacement for Ribisich.

The Argentine Banking Association said the central bank broke the law by forcing Ribisich out. "They have not respected the constitutional guarantees of due process," it said in a statement.

Citibank Argentina is the country's 12th largest bank by deposits.