Argentina's woes hit Miami banks
Jim Freer
Several Miami banks are attempting to resolve their problems with Argentina by selling or trading loans on which Argentine banks have stopped making payments amid that country's financial crisis.
Alberto Valdes, chairman and CEO of International Bank of Miami, said that since late October his bank has helped several Miami banks, which he would not identify, arrange sales of problem loans and of deposits they have in Argentine banks to investors based in Argentina.
International Bank of Miami is considering similar sales of some of its Argentine loans and deposits, Valdes said. The bank also is considering transactions in which it would swap its Argentine loans for equity stakes in Argentine companies.
Any debt-for-equity trades would require approval from U.S. banking regulators, Valdes said.
Many sales of loans in Argentina would result in recoveries of less than 100 percent for each U.S. dollar. But the sales would enable the Miami banks to recover portions of losses they booked this year when they placed those loans on non-performing status following defaults by their correspondent banks in Argentina.
In that lending, Argentine banks and banks in other Latin American nations re-lend the money from U.S. banks to local customers for financing of exports and imports.
Payments stopped
In late 2001, many Argentine banks stopped making payments on those loans and on other financial obligations when the value of the peso began tumbling after the government ended its one-to-one link with the U.S. dollar.
The New York office of Britain's Standard Chartered Bank is considering a plan to buy loans that banks have made to three Argentine banks that are owned by Credit Agricole of France, said a Miami banker who asked not to be identified.
Under that plan, the banker said Standard Chartered would buy those loans at 20 percent of their face value or agree to buy them in 2005 at various other discounted prices.
Executives at Standard Chartered did not return phone calls.
Valdes, this year's president of the Florida International Bankers Association, said he is not familiar with a program that Standard Chartered might be preparing.
But he anticipated that several financial institutions might soon begin programs for trading debts of Argentine banks, similar to programs that financial companies set up during the Latin American financial crises of the early 1980s and mid-1990s.
Argentina's crisis is an example of how problems in Latin America can have serious impacts on South Florida, including Miami- based banks that finance trade between the United States and Latin America, said J. Antonio Villamil, a Coral Gables-based economist.
This year's impact has been especially heavy on many of those banks because two major international banks – Credit Agricole and Canada's Bank of Nova Scotia – have called employees home from banks they own in Argentina, leaving those banks and their loans in the hands of the cash-strapped Argentine government.
"They have basically walked away, and this has set a dangerous precedent," said David Konfino, Coral Gables-based president of the international division of Union Planters Bank.
Many U.S. banks, including Union Planters, have done large portions of their correspondent lending in Argentina and several other Latin American nations with local subsidiaries of major European and North American banks, Konfino said.
"Now, banks are reassessing whether lending to Latin American banks owned by foreign entities is as safe as we thought, or whether it is better to lend to banks with local ownership and are there to stay," Konfino said.
He said that Union Planters, based in Memphis, Tenn., this year sold off what he called its "relatively limited" number of non- performing loans in Argentina.
Some banks have not been as fortunate.
AmTrade International Bank of Georgia, which had its main office in Miami, was closed by regulators on Sept. 30 following heavy losses that included non-payments of loans in Argentina.
International Bank of Miami, which has about $1 billion in assets, has remained profitable this year. In the first quarter it added $30 million in loans and certificates of deposits placed in foreign banks to its list of assets 90 days or more past due.
Those additions, and subsequent writedowns of loans, were primarily for Argentina, Valdes said. Bank executives think they have fully accounted for their problem loans in that country, he said.
Argentina woes impact bottom line
International Bank of Miami's net income for this year's first nine months was $3 million, according to the bank's reports to the Federal Deposit Insurance Corp.
"For this year, we expect that our net income will be about 80 percent of what we made last year, and we expect a stronger year in 2003," Valdes said.
International Bank of Miami's net income for 2001 was $8 million. Valdes' estimate puts that figure in the $6.5 million range for this year.
In addition to trade finance, International Bank of Miami's major businesses are commercial real estate lending and small business lending in South Florida.
Valdes said "quite a few" Miami-based banks, foreign agency bank offices and international divisions of large banks have booked losses on loans that have gone sour in Argentina.
He said several banks with offices in other U.S. cities and International Bank of Miami are considering filing a lawsuit in which they would seek to obtain money they are owed by the Argentine units of Bank of Nova Scotia and Credit Agricole. He would not identify the banks that may file suit.
"We are gathering information and preparing a legal fund," said Valdes, who added that the bankers have not chosen a country for the filing of a suit.
Carl Fornaris, a partner in the Miami office of the law firm Greenberg Traurig who specializes in banking issues, said he has heard that International Bank and its allies are attempting to determine "where they might be able to gain some recoveries."
If those bankers determine that the Argentine banking units have assets that could be garnered in the United States, a suit in a U.S. court might be feasible, Fornaris said.
Argentina, which has been in a deep recession for four years, suspended payments this year on loans made by the World Bank and the Interamerican Development Bank.
Whether Argentina can begin a recovery in 2003 will depend largely on whether a new administration will recognize that the country must continue to pay its foreign obligations, said economist Villamil, CEO of The Washington Economics Group.
Those elections, for a new president and congress, could be held as early as March.
E-mail contributing writer Jim Freer at jimfreer@aol.com.
© 2002 American City Business Journals Inc.
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