Vulture funds subpoena HSBC to block $5 billion Argentine bond offer.

[forest444]

Source: Buenos Aires Herald

Holdouts led by Paul Singer's Cayman Islands-based EML and London-based Aurelius Capital Management served HSBC with a subpoena for documents on the bank’s involvement in Argentina’s plan to raise US$5 billion to boost the Central Bank’s foreign currency reserves, a source close to the negotiations told Bloomberg yesterday.

International banks (including HSBC, JP Morgan, Goldman Sachs, Deutsche Bank, Citibank, Santander, and BBVA) are on the verge of lending the country at least US$5 billion through a bond issuance at an annual interest rate of 7%, after meetings held by Argentine Finance Secretary Luis Caputo in New York with bank representatives.

Nevertheless, getting hold of the funds won’t come as easy as planned because the vulture funds are trying to find out whether the loan would violate United States District Judge Thomas Griesa’s order limiting the country’s capacity to raise money offshore. Holdouts may serve other banks with subpoenas as well, the same source told Bloomberg. The move is similar to the previous attempt by the holdouts at the beginning of the year to gather information from Deutsche Bank about US$1.4 billion worth in Bonar 2024 bonds issued by Argentina, denominated in US dollars but governed by Argentine law.

Getting access to such a loan would be an important aid to the Central Bank’s foreign-currency reserves, which stand at a nine-year low of US$25.2 billion partly as a result of annual foreign debt payments of US$14 billion.

Griesa raised the country’s bill with the vulture funds to around US$8 billion in October after he agreed that holders of US$6.1 billion of defaulted bonds must also receive payment when the country services restructured debt. An initial US$1.33 billion, plus interest, was granted by Griesa to NML and Aurelius in 2013; NML, the largest of the vulture funds, seeks nearly a billion dollars for bonds purchased on the secondary market in 2008 for US$48 million.

Read more: http://buenosairesherald.com/article/205788/%E2%80%98vultures%E2%80%99-subpoena-hsbc-over-loans

[Helen Borg]

1. Has anyone watched The Big Short yet?

Different context, same culture...

[forest444]

5. Great analogy.

It's amazing how many people literally don't understand that people can - and very often do - bet for a stock to fall. And moreover that the same people that do so, often try to promote the same stock in public (since volume makes their own winnings even juicier once the stock tanks).

Happy New Year, Helen. All the best for 2016!

[mtasselin]

2. anytime

Anytime that asshole paul singer is involved it is not good for the people or the country. If there is hell there will be a special place for him sitting next cheney & bush and so many wall street gangsters.

[forest444]

6. Well said.

This TARP baby keeps most of his money in the Caymans, and conducts all his vulture fund scams through the Caymans - and yet enjoys full access to U.S. courts (which he almost certainly bribes).

The only thing he should have full access to, is to U.S. jails.

Anyway, Happy New Year mtasselin! Best wishes for 2016.

[ChiTownDenny]

3. I know google is my friend but...

how does a U.S. court dictate that a foreign country can't borrow from other foreign entities?

[forest444]

4. Excellent question.

Last edited Fri Jan 1, 2016, 04:21 PM - Edit history (1)

It shouldn't; but thanks to selective enforcement of court precedents - and the fact that the senile (almost certainly bribed), Nixon-appointed Second District Judge, Thomas Greasa, has jurisdiction over Lower Manhattan (where many major banks and financial institutions are headquartered, at least on paper) - it does.

When an investor - be it an individual, institution, money laundry, or whatever - buys a bond of any kind, that contract is governed by among other things the principle of Champerty: no bond purchase can be made with the bad-faith intent of suing for more later. Doing so is, moreover, explicitly against New York State Law Section 489 (Greasa allowed it on the ground that - get this - the vulture funds didn't buy the bonds in order to sue in and of itself, but to sue for money; that's like saying to a drug kingpin: it's ok because you don't traffic in drugs for the joy of trafficking, but for the money).

And what precedent did Greasa use? Singer's own! His first foray into vulturing was suing Peru in 1996 for the full face-value (plus interest) of bonds that had defaulted years earlier. He paid $11 million for bonds whose market value was $20 million - but whose face value was $55 million. Imagine buying a stock at 11, and then suing the issuer for 55 because at some point years ago it was at that level (!).

Singer moreover bought these bonds after Peru defaulted on them (Peru was in a severe crisis between 1988 and 1992); but despite (or should I say, because) the patent bad faith, a Republican-appointed district court on Wall Street agreed. Greasa even blocked all other bondholders' payments until Singer got his 400% payout; going back to the stock analogy, then imagine getting a judge impound all other stock holders' money until you get you way. Not wanting to go though Argentina has been going through, Peru paid up rather than appeal.

Naturally, once that precedent was established a rash of copycat lawsuits promptly emerged. Thus vulture funds were born. Here's a good summary: http://www.jubileeusa.org/vulturefunds/vulture-fund-country-studies.html

The Argentine case, in which he bought defaulted Argentine bonds for $48 million from a black market reseller in 2008 and now demands nearly a billion, is the most prominent but certainly not the first (and probably not the last). The best part is, Singer has already collected because he holds hundreds of millions in CDS default insurance which he redeemed in August 2014; that's why he needed Greasa to manufacture a "default" (by illegally blocking almost all the other bondholders' payments).

Which begs the question: why, then? Singer could still accept Argentina's offer of market-value repayment, which would be over $200 million on top of the hundreds of millions in CDS payout. It would release the other bondholders' money (which Argentina has been paying into escrow), and would help Argentina reenter the international bond markets (which it has in part, despite ongoing harassment from Singer).

Argentina's own success in restructuring its defaulted bonds ran afoul of neocons in Washington, you see. They are opposed to all foreign debt restructuring (except, of course, Iraq's, whose bondholders were forced by Bush to take something like an 80% cut in principal). This malicious policy, unfortunately, hasn't changed much since Obama took office.

[ChiTownDenny]

7. Thanks, forest444!

[forest444]

8. You're welcome, Denny.

Happy New Year! All the best for 2016 to you and yours.