Bank of New York Kicked Out of Argentina

Argentine Chief of Staff Jorge Capitanich announced in Tuesday morning’s press conference that the Central Bank’s Superintendant of Financial and Exchange Entities has revoked the operating license of the Bank of New York-Mellon, denying it the ability to maintain a branch in the country.

The Superintendant’s Resolution 437, dated Aug. 25, states that BoNY has not carried out any “active operations, nor have there been any active operations since December of 2012.” It has also failed to offer financing or other financial services to any resident of Argentina since January of 2013 to date, thus not meeting the requirements demanded of any foreign bank operating in the country.

The government bill proposing to open a new voluntary debt swap to restructured bondholders under Argentina law, to be debated in the Senate on Aug. 27, also authorizes the Finance Ministry to “take necessary steps” to remove BoNY as the country’s trustee bank for the 2005 and 2010 debt restructuring. BoNY violated the terms of the restructuring contract, by failing to pay bondholders on the June 30 deadline, despite the fact that Argentina deposited $539 million in BoNY’s account for that purpose on June 27.

Capitanich also pointed out that a group of hedge funds, including George Soros’s Quantum Partners and Kyle Bass’s Hayman Capital, has filed a lawsuit against BoNY in London, demanding a 226-million-euro interest payment, blocked by New York Judge Thomas Griesa last month. The New York Times reported Tuesday that the plaintiffs argue that, since the interest payment they are owed is governed by British law, Griesa has overstepped his jurisdiction in blocking their payment.

— Argentina’s Proposed New Debt Swap Can Work Very Well, Hedge Fund Manager Says —

David Martinez Guzman, owner of the Fintech Advisory hedge fund, which reportedly holds hundreds of millions in defaulted Argentine bonds, is confident that the Fernandez de Kirchner government’s proposed plan for a new debt swap, governed by Argentine law, could work very well. It would provide the government with “an orderly mechanism that would isolate the judge” Thomas Griesa, and “reestablish the order and chain of payments,” to creditors which have been interrupted by the New York judge.

Martinez, whose Fintech participated in both the 2005 and 2010 debt restructurings, told the daily Pagina 12 in an interview published Aug. 24, that the new plan “is a correct way for Argentina to reassert control over its financial matters, rebuild the payments chain for the restructured bonds,” and isolate Griesa and the vultures. There are many investors willing to do business under Argentine law, he said, because “Argentina’s solvency and willingness to pay are undeniable…. There’s nothing that Griesa can do about an issuance of internal debt in Argentina, to which there are no market obstacles.”

He pointed to the fact that Argentina has begun making payments on its defaulted debt to the Paris Club; it has issued bonds to pay the Spanish oil firm, Repsol, as well as to others who won suits against it at the World Bank. But it drew the line at extortion, Martinez said. Griesa’s rulings “hurt all of us who had valid [restructuring] contracts. By breaking those contracts, the judge universalized the litigation, and he doesn’t have the right to do that to bondholders who signed agreements in London, Brussels or Tokyo” who have nothing to do with the vulture funds’s litigation against Argentina in New York.

Martinez stated that Griesa has exceeded his authority and jurisdiction so egregiously, that there’s no guarantee that the Appeals Court will back up his rulings. It did so in his interpretation of pari passu, but now “there are many more victims,” such as European bondholders. “To propose stopping Argentina from reestablishing relations with all the hold-ins, through the issuance of domestic debt, is going too far,” he warned.

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