Last updated: December 4, 2012 12:15 am
BNY Mellon joins Argentina spat
Bank of New York Mellon has waded into the legal dispute between Argentina and its bondholders, underscoring the high stakes involved in the outcome of the sovereign debt restructuring case for the world’s biggest custody bank.
BNY Mellon has been caught in the middle of the dispute ever since New York Judge Thomas Griesa ruled that Argentina could not pay the holders of the defaulted debt it restructured in 2005 and 2010 without also paying “holdouts” of the bonds.
ON THIS TOPIC
- Menem found guilty of smuggling weapons
- David Martinez US judges jeopardising finance
- Distractions mask Argentine discontent
- Argentina given month to make debt offer
IN BANKS
As trustee for Argentina’s restructured debt, BNY Mellon is charged with dispensing payments from the country to investors in the exchanged bonds.
But on Monday the bank filed an appeal of Judge Griesa’s November 21 decision, asking the court to allow it to submit its own arguments and opinions. A US appeals court already put Mr Griesa’s order on hold last week at the request of Argentina, and a hearing is set for February 27 to discuss the issue.
The bank has so far been sending non-party legal briefs asking the court to provide guidance that would ensure BNY Mellon is not held in violation of the judge’s order or its trustee indenture. But two people familiar with the bank’s thinking have told the Financial Times that BNY Mellon is willing to take the case to the US Supreme Court if February’s hearing goes against Argentina. However, the people also noted Argentina was likely to make the first move in any supreme court appeal.
The dispute highlights the important intermediary role played by BNY Mellon, as well as New York’s position as a global payment processing centre and hub for sovereign debt sales. Earlier this month the New York Federal Reserve warned that Judge Griesa’s controversial order “could have operational ramifications that impede the smooth and efficient operation of the payments system”.
Argentina’s options for re-routing payments around New York law, and possibly BNY Mellon, have become a popular game for analysts. They include everything from sending cheques to bondholders to offering them to swap into local-law bonds.
“Our impression is that this boils down to a blueprint for an end game where Argentina snuffs NY law, its courts and its payment system,” Vladimir Werning, a JPMorgan analyst, wrote after Judge Griesa’s revised order to pay holdouts.
Holdouts believe time granted by last week’s stay will be devoted to a rerouting strategy.
BNY Mellon has said it has no knowledge of Argentina preparing such a move.
The Argentine case has also led to soul-searching in another critical area of New York’s financial prominence: whether sovereigns will reject its governing law for issuing debt, versus London’s.
Some observers point to English law as a better defence against holdouts, citing a 2005 analysis by a lawyers’ committee established by the Bank of England. It says courts should not construe pari passu – meaning “equal footing” – to mean “equal payment” in bond contracts, the interpretation which US courts have used against Argentina.
Alternatively, a few legal tweaks could be all that is needed to keep New York on top as a home of sovereign debt sales.
“If the pari passu clause interpretation is so crazy, one can just modify the clause,” said Mitu Gulati, a law professor at Duke University. A buyer of bonds could also “embrace the fact that there is one jurisdiction that is willing to try to protect its rights”, he added.
Keine Kommentare:
Kommentar veröffentlichen