Argentina Revokes BNY Mellon's Operating Approval -- Update

By Dow Jones Business News, 

By Ken Parks

BUENOS AIRES--Argentina has revoked Bank of New York Mellon's permission to operate a local representative office after the bank, acting as a trustee of some Argentine bonds, refused to transfer interest payments owed to bondholders last month due to a U.S. court order.

"The Superintendency of Financial and Foreign Exchange Institutions has revoked the authorization for the representation of Bank of New York in Argentina," Cabinet Chief Jorge Capitanich told reporters Tuesday morning.

In a statement, the central bank justified its decision to revoke BNY Mellon's authorization to operate a representative office because the U.S.-based bank hadn't provided credit and other financial services to Argentine residents since the end of 2012.

A spokesman for BNY Mellon declined to comment. A person familiar with the matter said the bank's representative office is unrelated to its trustee contract with the Argentine government.

Argentine President Cristina Kirchner's government is already seeking to remove BNY Mellon as the trustee of its bonds governed by U.S. and U.K. law through a bill submitted to Congress last week.

Argentina defaulted last month for the second time in almost 13 years when investors didn't receive $539 million in interest payments due on July 30.

Argentina deposited the money on time in BNY Mellon's accounts at the central bank, but U.S. District Judge Thomas Griesa blocked its distribution to bondholders after Argentina ignored his ruling to pay a small group of hedge funds that sued to collect on debt the country repudiated in 2001. The default could eventually affect almost $29 billion in Argentine debt issued overseas.

Investors who own EUR1.3 billion ($1.71 billion) of Argentine government bonds affected by Judge Griesa's order are suing BNY Mellon in the U.K. to gain access to the interest payments they are owed.

Under legislation sponsored by the Kirchner administration, state-run bank Banco de la Nacion would take over as trustee and future interest payments would be made in Argentina if bondholders approve those measures. The bill would also allow investors to exchange their Argentine bonds issued under the laws of other countries for local law bonds.

Analysts say the bill is an attempt to side step Judge Griesa's ruling, a potentially risky strategy that could see the judge find Argentina in contempt. With Mrs. Kirchner's ruling coalition holding majorities in both houses of Congress, the bill is expected to be passed and signed into law before Argentina's next interest payment is due on Sept. 30.

Argentina's latest default stems from its decision to repudiate about $100 billion in debt during a deep economic crisis in 2001.

Investors eventually exchanged almost 93% of their defaulted bonds for new securities in heavily discounted restructurings in 2005 and 2010 that gave them around 33 cents on the dollar. But some creditors held out for a better deal and sued for full repayment.

In 2012, Judge Griesa ordered Argentina to treat its creditors equally in a case involving hedge funds led by Elliott Management Corp.'sNML Capital Ltd. and Aurelius Capital Management LP. That ruling was upheld by the Second Circuit Court of Appeals and the U.S. Supreme Court in June declined to hear Argentina's appeal.

Last week, Mrs. Kirchner offered holdouts another chance to restructure their defaulted bonds on the same terms as the 2010 debt exchange. NML and Aurelius, which have won about $1.6 billion after years of litigation, have said the terms of that debt swap are unacceptable.

Nicole Hong and Matt Wirz contributed to this article.

Write to Ken Parks at

  (END) Dow Jones Newswires
  Copyright (c) 2014 Dow Jones & Company, Inc.

This article appears in: Bonds , Mutual Funds , International

Referenced Stocks: BK , FSHOP13

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