Reuters/New York

A federal judge has said Citigroup cannot process interest payments by Argentina on some bonds issued under that country’s law, a defeat for the cash-strapped nation as it attempts to re-enter international debt markets.
US district judge Thomas Griesa in Manhattan said letting Citigroup process the payments on so-called dollar-denominated exchange bonds would violate a requirement that Argentina treat bondholders equally.
Griesa’s decision upheld his order on July 28 that blocked Citigroup from making the payments on an estimated $2.3bn of bonds.
“This is a major blow,” said Ignacio Labaqui, an analyst for Medley Global Advisors in New York.
Citigroup asked Griesa not to enforce his decision while it appeals, warning of “catastrophic consequences” for its Citibank unit if it fails to process a $3.7mn payment scheduled for March 31.
Karen Wagner, a lawyer for Citigroup, said in a court filing that failure would result in “immediate and irreparable injury” to the bank, “including the possible loss of its valuable Argentine banking licence.”
Argentina’s economy ministry declined immediate comment.
Jonathan Blackman, a New York lawyer representing Argentina, said the country is disappointed and will pursue its own appellate remedies.
Griesa’s decision is the latest setback for Argentina in a long-running battle stemming from the country’s roughly $100bn sovereign debt default in 2001.
Argentina subsequently restructured its bonds in 2005 and 2010, swapping existing bonds for new bonds worth less than one-third as much. But a group of bondholders known as “holdouts,” including billionaire Paul Singer’s Elliott Management LP hedge fund and its NML Capital affiliate, as well as the Aurelius Capital Management hedge fund, refused to accept the terms, and demanded to be paid in full.
Argentine’s dollar-denominated bonds gave up early gains after the decision, and were down by roughly 1% to 4% in late trading, Reuters data show.
Griesa has ruled that the holdouts must be paid before Argentina makes payments on the restructured bonds.
Argentina refused, and defaulted last July after rejecting Griesa’s order that it pay $1.33bn plus interest to the holdouts.
Citigroup has portrayed itself as being in a legal no man’s land, forced to choose between processing payments in defiance of Griesa’s order, or not processing payments and putting its ability to do business in Argentina at risk.
Griesa acknowledged the predicament, saying “neither option is appealing,” but said it was the result of Argentina’s having “refused to observe the judgments of the court to whose jurisdiction it acceded.”