The big foreign banks join in the hypothesis of the default

El Cronista

The big foreign banks join in the hypothesis of the default

 

Thursday, November 15, 2012

 

On Wall Street, uncertainty seems to be priced high.  And it’s because for the main investment banks, the tug of war that Argentina has had with the vulture funds in the courts of New York brings out all kinds of speculations.  However, they carry a common factor, with the main financial entities like Bank of America Merrill Lynch, BNP Paribas, Credit Suisse and JP Morgan seem to be playing their own game; that is, a generalized warning to those that hold Argentine debt today about a potential fall in bonds that came out of the debt swaps of 2005 and 2010.  BofA Merrill Lynch says that “this could end up badly or well, but when we say well we refer to Argentina continuing to pay debt.”  Along these lines there are some scenarios that would verify this hypothesis: “Argentina overturns the Lock Law and reopens the swap with the same conditions as in 2010 … in this way it would show a different predisposition to the courts of New York.”  On the other hand, there is also speculation with the scenario when the judicial process would be “sufficiently long” to reach to January 2015.  On the terrain of uncertainties, they say that the danger is that Argentina doesn’t recognize Griesa’s decision and that would become a “technical default.”

 

“If Argentina enters into a technical default with regard to its bonds under foreign legislation we believe that this would negatively affect the capacity of paying local bonds as well,” they said.

 

In the same line, the bank JP Morgan adds in its report that the judicial process in New York “could raise the anxiety of investors,”  In this direction, the entity is making a “temporary” division between those bonds that are under foreign jurisdiction and the local ones, which have been affected in different ways by the stirrings of confrontation in the courts. 

 

For the people at Credit Suisse, “there are significant risks around Judge Griesa and his decisions that could impact Argentina’s ability to pay its debt without paying the holdouts.”  Thus, they say that if the ruling of the court is applied to the banks, this would mean part of the money deposited in New York will go to the holdouts “which would oblige Argentina to make additional deposits that compensate the payment of the bondholders that entered the swaps of 2005 and 2010 to not enter into default.”