By Taos Turner
BUENOS AIRES--Amid the battle between a small group of hedge funds and the Argentine government, Argentina on Friday suspended Citigroup's local unit from trading in the country's capital market after the bank made a deal with the hedge funds that have sued Argentina in a U.S. court.
Last week, Citi Argentina reached an agreement with the hedge funds and the court that allowed it to make interest payments to local bondholders. U.S. District Judge Thomas Griesa had previously ruled that Citi couldn't make the payments. His ruling put Citi in a legal bind, forcing it to choose between obeying a U.S. court order or Argentine law, which dictated that it make the payments.
The deal angered Argentina's economy minister, Axel Kicillof, who said Citi chose to protect itself even though it knew that the interest payments wouldn't actually reach the hands of bondholders. Mr. Kicillof said at a news conference later that Citi had behaved illegally.
A spokesman for Citi declined to comment.
"The National Securities and Exchange Commission today preventively suspended Citibank NA from operating in the capital market because it believes that by signing an agreement with the hedge funds...it did not act in according with Argentine legislation," the commission said in a statement late Friday.
The suspension isn't likely to have any material impact on the bank's business in Argentina, a person familiar with Citi's operations said Friday.
The dispute stems from a yearslong lawsuit that Argentina lost against a small group of hedge funds in the U.S.
In a filing with the U.S. Securities and Exchange Commission last year, Citigroup said the failure to make its bond payments in Argentina could lead to "sanctions, confiscation of assets, criminal charges or even loss of licenses" and expose "Citi and Citi Argentina to litigation."
Citi had already announced that it would exit the custody business in Argentina, which represents about 2% of its income in the country.
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Access Investor Kit for Citigroup, Inc.