Citibank to Exit Custody Business in Argentina

Citibank plans to close its sub-custody business in Argentina, after a U.S. District court judge ruled that the bank should not make interest payments on Argentine sovereign debt to local bondholders.

According to a letter to U.S. District Court Judge Thomas Griesa, the bank claims failure to make payment would force it to violate Argentine law and endanger its ability to carry out custody in the country.

“In view of recent developments… Citibank has determined to have its Argentine branch, Citibank Argentina, develop, and execute, a plan to exit the custody business in Argentina as soon as possible,” says the lawyers representing Citibank in a letter.

The letter also says it has faced threats from Argentina to strip Citibank of its banking license and impose criminal, civil and administrative sanctions.

The ruling relates to legal battle between Argentina and a group of New York-based hedge funds that were awarded full payment on their defaulted sovereign bonds. Judge Griesa ruled Argentina must settle with the funds before it continues paying interest to the large majority of investors who accepted significant write-downs on debt holdings after the country’s record default on $100 billion in 2012.

It has not yet determined how it will exit the custody business in the country. “It may include the sale of certain portions of the custody business or termination of account relationships with notice to ice customers,” the letter says.

Citibank has dominated the sub-custody business in Argentina, but now with its exit, the country will open up to competition, giving rise to other sub-custodians that have a small footprint in the country, such as Banco Santander Rio and Deutsche Bank.

Citi is Argentina’s 12th largest bank by deposits with $2.67 billion as of December 2014, according to Citi’s website. The bank employs 2,800 staff and has 71 branches in the country.