Citibank lawyer warns judge Argentina branch will be in danger if he blocks bond payments

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NEW YORK — A Citibank lawyer warned a judge on Tuesday that its Argentina branch will be in "great danger" if he refuses to let the South American nation pay interest to bondholders.

Attorney Karen Wagner described the threat to U.S. District Judge Thomas Griesa during three hours of arguments in Manhattan. She said the bank would be forced to violate Argentine law if the judge orders it to block interest payments to local bondholders who traded their bonds for ones of lesser value after the republic defaulted in 2001 on $100 billion of debt.

She said the judge would be "forcing Citibank to violate the law and putting it in a position of great danger" if he applied to Citibank his rulings requiring Argentina to pay $1.5 billion to U.S. hedge funds if it pays interest to bondholders who exchanged their bonds in 2005 and 2010. More than 90 percent of Argentine bondholders exchanged their bonds while U.S. owners retain bonds at full value.

Wagner said bonds purchased by Citibank customers in Argentina are subject to Argentine law and are exempt from the judge's rulings.

New York-based lawyer Carmine Boccuzzi, representing Argentina, supported Wagner in her arguments. A lawyer for U.S. hedge funds urged the judge to order Citibank to refuse to participate in any interest payments.

The judge did not immediately rule, saying he must decide if Citibank is a significant player in the event Argentina makes an interest payment on bonds owned by some of its local customers.

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