Argentina Excludes Banks From Restructuring Fees

Argentina, seeking to avoid paying more money to banks that helped the country sell bonds before last year’s default, said many of the world’s largest lenders won’t be eligible to help renegotiate its debts.

The decision eliminates Credit Suisse First Boston, Citigro up Inc., J.P. Morgan Chase & Co. and rival banks from earning advisory fees that some analysts said may total at least $100 million. Argentina stopped payment on $95 billion of bonds last
December, the biggest sovereign default ever.

President Eduardo Duhalde is making a political choice that may further isolate South America’s second-largest country from international capital markets that argentina tapped throughout the 1990s to become the biggest emerging market borrower.

“This is unprofessional and will hurt Argentina the day it wants to return to capital markets,” said Jose Luis Espert, director of Espert & Asoc., which provides economic forecasts for banks and other clients in Argentina. “Argentina should take
responsibility for issuing debt it was unable to repay and not find a scapegoat in some bank that was doing its job.”

The decision opens the door to a handful of Wall Street firms including Bank of America Corp. that didn’t help Argentina sell bonds and now have an opportunity to win new business. European Interamerican Finance Corp., a Miami-based investment firm that focuses on emerging market debt, is putting together a group to bid for the advisory role, said Martin Schubert, the company’s chairman.


The Economy Ministry said it will start accepting offers Dec. 2 for advising on the restructuring talks and recommended any bank that managed a debt transaction for Argentina in the 24 months prior to the default not bid. Other banks that underwrote debt sales in the period include Goldman Sachs Group Inc., Merrill Lynch & Co., Deutsche Bank AG, Morgan Stanley & Co. and BNP Paribas SA. Economy Minister Roberto Lavagna said earlier this year the talks probably would be handled by a group of banks, some from Europe and some from the U.S. Ministry spokesman Armando Torres said today “a lot of banks will be left out of the process.”

CSFB spokeswoman Christina von Bargen, J.P. Morgan spokeswoman Brooke Harlow, and Citigroup spokeswoman Christina Pretto declined to comment. Goldman Sachs spokesman Bruce Corwin, Deutsche Bank spokeswoman Juanita Gutierrez and Merrill spokesman Tim Cobb also declined to comment.

IMF Talks

“We expect some banks to exclude themselves from this process,” Lavagna said in an interview. Lavagna is scheduled to have talks this week with the International Monetary Fund, which has said starting negotiations on the defaulted debt is a
condition for a new loan agreement.

Argentina borrowed more than any other emerging market country in the 1990s, selling overseas bonds to finance an increase in spending and rising interest payments. Investors were drawn by Argentina’s currency stability — the peso was fixed one-to-one with the dollar — and economic growth.

As Argentina struggled to refinance debt payments last year, the government froze deposits, fueling riots that toppled the administration and prompting a devaluation of the currency. Many Argentines have lost all of their savings and opinion polls show that most blame the biggest banks in the country for their losses.

The economy is forecast to contract 15 percent this year, the biggest decline in a century.

Some Argentine politicians sued former Economy Minister Domingo Cavallo after he hired CSFB, J.P. Morgan and eight other banks to arrange a government debt exchange in June last year. At the time of the transaction, the Economy Ministry said the banks would be paid $141 million in fees.

`Best Distribution’

“These banks knew Argentina the best, had the best distribution,” said Philip Sofaer, director of Sofaer Global Research LLC, which manages $1 billion of stocks and equities and sold all of its Argentine securities before the default. “Now their interest in the country will diminish.”

Many of the banks are also among Argentina’s largest creditors. Some bondholders said they doubt Duhalde’s government will make much progress on debt negotiations before a new government takes office in May.

“By its temporary nature, it’s hard to see the current government taking any decisive action on the debt problem,” said George Estes, a director of the Argentina Bondholders’ Committee, which represents investors such as Morgan Stanley Investment Management and Bear Stearns Asset Management Inc.

Picture of José Luis Espert

José Luis Espert

Doctor en Economía

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