MercoPress. South Atlantic News Agency

US court dismisses Citibank and Argentina appeal: back to Judge Griesa

“We decline to find jurisdiction because the order appealed from is a clarification, not a modification, of the amended February 23, 2012 order”

A US court on Friday dismissed an appeal by Citibank and Argentina to let the country make payments on debt tied up in a bitter legal battle with hedge funds.

The Federal Appeals Court for the Second Circuit ruled it did not have jurisdiction in the case and sent the appellants back to New York District Judge Thomas Griesa, who has blocked Argentina from servicing its restructured debt until it settles its 1.3-billion dispute with the two US hedge funds.

The acrimonious court battle has forced Argentina into default on its debt for the second time in 13 years, after Griesa blocked it from paying creditors who agreed to take huge losses on their bonds until it pays the hedge funds in full.

Citibank was caught up in the row when Griesa expanded his initial payment freeze to include bonds issued under Argentine law. That is the portion of Argentina's debt for which Citibank is the payment agent.

The three appeals court judges ruled the change-up was beyond their purview.

“We decline to find jurisdiction because the order appealed from is a clarification, not a modification, of the amended February 23, 2012 order,” they said in their ruling.

“However, nothing in this court's order is intended to preclude Citibank from seeking further relief from the district court.”

It is unlikely Citibank will get a break from Griesa, though. After apparently overlooking the Argentine-law bonds in his first ruling, the judge let the bank forward a payment to creditors -- but called it a one-time exception.

Argentina, which missed the June 30 deadline on a 539-million dollar interest payment, owes another 200 million to bondholders on September 30.

The case has trapped Citibank between a rock and a hard place, faced with either infuriating a large customer -- and possibly losing its Argentine banking license and assets -- or defying a US court order.

Citibank faces regulatory and criminal sanctions by Argentina, if it cannot process the 5 million payment by Sept. 30, Karen Wagner, Citigroup's lawyer, said during arguments on Thursday.

”If we obey, we have a gun to our head, and the gun will probably go off,” Wagner said during her Thursday presentation. “I ask this court, what good will that do? It won't change what Argentina does.”

But some panel members questioned why they should consider Argentina's position when the country was taking steps, including passing legislation, to avoid complying with orders that it pay creditors suing for full payment on defaulted bonds.

“I'm not sure why we're even listening to this,” said Circuit Judge Reena Raggi. “Your client is the person or entity holding the gun to Ms. Wagner's client's head”

Argentina is desperate to get back on track with the restructuring of the 100 billion dollar in debt it defaulted on during its 2001 crisis. In 2005 and 2010 it persuaded most of its creditors (93%) to take 70-percent losses on the face value of their bonds.

But hedge funds NML Capital and Aurelius Capital Management bought up defaulted Argentine bonds on the cheap and refused to accept a write-down, suing Buenos Aires for full payment and derailing its restructuring plans.