Argentina probes banks on bonds and put options

BUENOS AIRES: Argentina’s central bank and regulators are looking into at least three of the nation’s banks for potential irregularities in transactions with government bonds and put options.

In addition to a probe into Banco Galicia y Buenos Aires SAU, Argentina’s largest private lender, which was made public by local regulator CNV on April 29, the central bank has sent email inquiries to at least two others: Banco Bilbao Vizcaya Argentaria SA (BBVA) and Banco Supervielle SA, according to people with direct knowledge of the matter.

The requests, which are unusual for the central bank, seek to determine whether the banks tried to deliberately affect bond prices before exercising put options the next day, the people said, asking not to be named and discussing sensitive information. Once the banks respond to the central bank’s inquiries, the findings may be sent to CNV, which would then decide on the next steps.

The central bank declined to comment, as did CNV, whose spokeswoman said the information is confidential.

A BBVA spokeswoman did not respond to a request for comment, and Supervielle said through a representative that the central bank’s request was “within the framework of its powers as supervisor”.

Put options on Argentine peso debt issued by the central bank – a pledge to buy back bonds if they fall below a certain price – have been used in the South American country for years to boost the attractiveness of bonds at regularly scheduled auctions.

Their popularity soared under Javier Milei’s government, becoming a growing concern for officials.

The figure reached a record high of over 20 trillion pesos and today remains close to that value, according to one person. The central bank declined to comment.

In the April 29 statement published by the regulator, the central bank said Galicia made dual sovereign bond transactions with its own companies to “manipulate prices” and allow it to execute puts on the notes on Feb 21.

The sale forced the central bank to issue about 113 billion pesos while earning Galicia a profit of 23 billion pesos.

Central bank regulations in Argentina impose a fine of up to five times the profit obtained or the damage caused, if proven.

A spokesman for Galicia said the bank is launching an internal probe into the matter and will respond to regulators by the end of May.

The issuance of pesos through the exercise of puts by banks is one of the three main “taps” officials have to issue currency, together with the purchase of US dollars from the private sector and the interest payments on its debt notes, according to official statistics.

The instrument has enabled Economy Minister Luis Caputo to roll over all the debt coming due and sell new notes to finance spending.

But the sheer size of the outstanding position – larger than Argentina’s monetary base – has stoked concern and prompted the government to scale back their use, reducing the appeal of the treasury bond auctions they were meant to promote.

Since April, the central bank has started to deliver puts that can only be exercised 30 days before the maturity of the bonds, which makes them less attractive. — Bloomberg