Canada's Bank of Nova Scotia is seeking more than 600 million US dollars in damages from the Argentine government, blaming actions by authorities for the losses it suffered when it shut down its Argentine banking unit, Quilmes, during the 2002 currency crisis and massive sovereign default.
The bank, Canada's third-largest bank by assets, said it wants compensation for the loss of its Argentine investment, the costs of winding-up Scotiabank Quilmes and for the harm to its reputation. It is the first time the bank has made a claim of this nature
Scotiabank said it tried to negotiate an amicable settlement with Argentina over the past 18 months, but has now moved to bring the matter before an arbitration panel under the terms of the a treaty signed by Argentina and Canada in 1991.
The panel will consist of three members, one nominated by Scotiabank, one by Argentina and the third will be agreed upon by both sides. Scotiabank alleges that Argentina's "expropriatory and discriminatory" actions violated the treaty.
"As a result, the bank and its shareholders experienced significant damages and as such it intends to vigorously pursue the right to compensation under the treaty," Scotiabank said in a statement.
The Canadian bank said it never received the bonds it was promised as compensation by the government when Argentina ordered it to convert US dollar-denominated deposits and loans into pesos at different exchange rates.
The bank also claims the Central Bank discriminated against Quilmes by not permitting it to pay a medium term note, even though it had the funds to do so, and by not granting it financial assistance on the same basis as Argentine-owned banks. Scotiabank also accused the Central Bank of obstructing Quilmes's attempts to restructure and reopen. Officials at the Justice Ministry in Argentina were not immediately available for comment.
Scotiabank has the biggest international presence of any Canadian bank with substantial operations in Mexico, Chile and the Caribbean.
The dramatic currency devaluation and record sovereign debt default in Argentina pushed Scotiabank to close Quilmes in early 2002. It wrote off the entire unit by taking a C$540 million (443 million US dollars) charge against earnings and sold Quilmes for a fraction of its original worth.
"They took a significant write-off for their Argentine operations. It's an interesting move but I don't necessarily see that as positive or negative," said Brenda Lum, an analyst at Dominion Bond Rating Service, who has a "stable" rating on Scotiabank.