Anyone who doubts the damage to Wall Street from the U.S. court decision ordering Argentina’s recent sovereign default should look at what happened to Bank of New York Mellon. The bank was caught in the middle and now has lost its license to operate in Argentina. Ordinarily on Wall Street you would ask which bank is next in line for that business, but no U.S.-based bank is eligible; any bank within U.S. legal jurisdiction would be in the same no-win situation. Argentina says it will be using a local bank to make its bond payments. It is hard to guess exactly how this will work, but the country has few other options. Bondholders might have to open accounts in Europe or the Caribbean to receive bond payments, but hassles like these are better than the prospect of not getting paid for years. However that problem is solved, the same workaround can be used in the future by any other country that needs to bypass U.S. jurisdiction. Given the current state of U.S. law, that will be almost every country sooner or later. Whatever happens, Wall Street’s grip on the international bond market will not be nearly as tight as it has been.
Raising capital: National Australia Bank is preparing a $2 billion IPO for U.S. subsidiary Great Western Bank. The parent bank plans to eventually sell all of its ownership stake in its U.S. operations. It may also look to sell its U.K. operations. Bank of America is selling 13 branches in the eastern half of Tennessee to First Tennessee Bank.
Austria is encouraging its banks to raise capital levels because of concerns over the impact of a protracted economic downturn in Russia.
The United States got through the month of August without a bank failure.