CORRECTED-UPDATE 4-Argentina will not let Citigroup quit custody business -govt source

miércoles 18 de marzo de 2015 18:05 GYT

(Corrects date Citibank opened its first branch to 1914, paragraph 11)

By Jorge Otaola

BUENOS AIRES, March 18 (Reuters) - Argentina will not allow Citigroup Inc. to exit its local custody business, a senior source in the government said on Wednesday, setting up a possible showdown between the leftist government and the banking giant over sovereign debt payments.

The government is demanding Citigroup process a March 31 coupon payment on its sovereign debt to avoid its latest default on foreign law bonds spilling into local debt.

However, the bank said on Tuesday it planned to quit the custody business, in which it acts as custodian of some Argentine bonds and processes payment for the ultimate security holder, after a U.S. court barred it from passing on the funds.

President Cristina Fernandez' has threatened to cancel Citibank Argentina's operating license if it refuses to process a March 31 interest payment, putting at risk the group's retail banking business in Latin America's No. 3 economy.

"There is no way we will let them exit their (custody) business," said the source, who is familiar with President Cristina Fernandez' view on the matter.

Citigroup has found itself at the center of a bitter court battle between Argentina and a group of New York-based hedge funds that were awarded full payment on their defaulted sovereign bonds by U.S. District Judge Thomas Griesa.

Griesa ruled Argentina must settle with the funds before it continue paying interest to the large majority of investors who accepted significant writedowns on the debt holdings after the country's record default on $100 billion in 2002.   Continuación...