Argentina warns Citibank it could lose banking license

Updated 14 March 2015
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Argentina warns Citibank it could lose banking license

BUENOS AIRES: Argentina threatened Friday to revoke Citibank's operation license if it refuses to process payments to bondholders, a move ordered by a New York judge presiding over a long fight between the country and a US investment group.
In a statement, the Ministry of Economy said failure to process the payments could lead to criminal charges against Citibank's employees in Argentina. The warning came a day after US District Judge Thomas Griesa told Citibank that it cannot let its Argentine branch process payments to bondholders unless US investors are paid as well.
In a statement sent to The Associated Press late Friday, Citibank said it planned to appeal the decision and would "pursue all legal measures available to comply both with this decision and Argentine legislation."
The dispute stems from Argentina's default in 2001 on $100 billion of debt. Most bondholders agreed to debt-swap deals in 2005 and 2010 that lowered Argentina's payments. A group of US hedge funds, however, demanded full payment on Argentina's debt and Griesa ruled they must be paid roughly $1.5 billion if Argentina pays interest to other bondholders.
In arguments made last week, Argentina said payments processed through Citibank's local branches should not be subject to Griesa's rulings. The judge, however, disagreed, saying there was overwhelming evidence the bonds had been marketed outside Argentina despite being processed locally.
"Judge Griesa's order violates, again, basic legal principles and makes clear that his decisions are not grounded in the law, but in his obvious bias against Argentina," the ministry statement said.
The judge urged Argentina to return to the bargaining table to negotiate a solution to the dispute. President Cristina Fernandez, known for fiery, populist rhetoric, often derisively calls the holdout debtors "vultures" and has said her government won't be extorted by US courts.
"Citibank is in a very tight spot," said Anna Gelpern, a law professor at Georgetown University who is a debt expert. "The judge basically said, 'Your regulatory troubles overseas are not my problem.'"
Citibank forms an important part of Argentina's financial landscape, being used by many multinational companies. According to Citibank's website, the bank opened in Argentine in 1914 and currently operates 74 branches in the country.
Gelpern said the latest ruling could have wide ramifications for domestic debt generation, in Argentina and other countries unable to access international financing. For years, Argentina has been unable to access credit overseas so its only way to finance projects has been through domestic debt issuances.
Griesa's ruling "is really expansive," said Gelpern. "Debt that people thought was domestic isn't domestic anymore."


Weekly Energy Recap: Too early to gauge trade tension fallout on oil markets

Updated 19 August 2018
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Weekly Energy Recap: Too early to gauge trade tension fallout on oil markets

  • Oil prices have moved in narrow band since June
  • Brent/WTI spread widens over week

Brent crude finished the week at $71.83 per barrel while WTI dropped to $65.91 as the Brent/WTI spread widened to $5.92 per barrel.
Oil prices fell as a result of market sentiment impacted by hypothetical fears over lower global economic growth.
Brent crude price fell below $72 for the first time since mid-April 2018.
Oil prices have moved in a narrow band since early June 2018.
The Brent price had been hovering between $73 and $78, until it dropped to nearly a four-month low at the middle of the week, then recovered by the week’s closing.
Oil fell after both OPEC and the International Energy Agency’s (IEA) monthly oil market reports forecasted lower growth in oil demand.
This was claimed to be a result of the major downside risk on economic growth amid US-China trade tensions.
These are reportedly impacting emerging economies across Asia as a strengthening dollar weakens their local currencies, and thus reduces purchasing power for transport fuel.
On the other hand, the IEA reported that oil consumption for plastics and other petrochemicals will keep demand growing and elevated for decades as this is driven by population growth and urbanization.
After oil inventories in the US fell to the lowest level since February 2015, last week, the US Energy Information Administration (EIA) reported an unexpected significant build up in US commercial crude oil inventories of 6.8 million barrels. This brought oil inventories slightly back above the five-year average.
The drawdown in US refined products inventories came on the back of US refineries running at a record capacity. On average they refined 18 million barrels per day for the first time, in order to meet high gasoline demand for the summer season.
This was an increase of 383,000 barrels per day on the previous week’s average.
Analysts are also making much about Saudi Arabia’s output cuts for July 2018. Last month the Kingdom lowered output by 200,000 barrels per day to 10.288 million bpd. My perspective on this is that it has nothing to do with potentially lower economic growth as a result of trade disputes between the US and China, nor emerging market turmoil.
Instead, as the world’s swing producer, the Kingdom must track the output of other OPEC nations and adjust its production accordingly. This is exactly what happened after Libyan oil output recovered and exceeded one million barrels per day for the first time since last June. Consequently, Saudi Arabia reduced production.
Saudi Arabia, as the only swing producer, changes its crude oil production to meet fluctuations in market demand. In reality, it’s far too early to know what influence trade tensions will have on economic growth. It will take time for such impacts to materialize and weigh on the market fundamentals.