Pontius Pilatus’ Court of Appeals

ARGENTINA - In Brief 20 Sep 2014 by Esteban Fernandez Medrano

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The US Court of Appeals for the Second Circuit refrained from judging on the appeal presented by Citigroup. The appeal aimed to determine whether judge Griesa’s rulings have the scope to prohibit its local branch (an independent subsidiary, established under Argentine law) to fulfill its obligations as payment entity for restructured bonds issued under Argentine jurisdiction. The denial to take the appeal of Griesa’s ruling on August the 4th (that allowed Citi Bank to pay only once Argentine Bonds at the June 30th coupons), was justified on formal grounds. It was presented as a request for clarification of a former ruling by Griesa. In a sense, rather than confirming what would look like a legal aberration, i.e. to argue that the scope of a US ruling reaches economic transactions done in another jurisdictions, the Court of Appeals (Judges Barrington Parker, Rosemary Pooler and Reena Raggi) “washed its hands” suggesting Citigroup to return to Griesa to find a solution. As we said in previous comments, the importance of such ruling is that it weakens Argentina’s strategy to implement a jurisdiction swap to avoid a forced default. If Citi Bank Argentina would have been allowed to pay debt not issued under US law, the option to swap out of US bonds would be a relatively easy option for US investors, rather than having to analyzes more complex and risky financial structures. Now the ball is back at Griesas fields regarding what to do on September the 30th when the next Par coupon payment is due. Regarding Citi Bank Argentina, Citigroup already announced that they will obey Griesas ruling, implying that it might follow the same luck as BoNY.