Argentina's Central Bank to hold talks over risks from bond puts

Argentina’s Central Bank is in talks with executives at commercial banks to reduce the overhang of puts on sovereign peso debts, days after President Javier Milei said they were the main obstacle to lifting exchange controls, according to people with direct knowledge of the negotiations.

Central Bank Governor Santiago Bausili is leading the meetings together with the directors Nicolas Ferro and Alejandro Lew, and deputy governor Vladimir Werning, said the people, who weren’t allowed to speak on the record.

The main interlocutors are executives from the four banks with the largest holdings of puts — Banco Santander Argentina, Banco de Galicia y Buenos Aires SAU, Banco Macro and BBVA Argentina — and representatives of the banking chambers.

The puts — pledges by the Central Bank to buy back the notes if they fall below a certain price — are currently valued at 20 trillion pesos (around US$16 billion at parallel exchange rate), the people said. Should banks exercise them, the authorities would be forced to print more money, stoking inflation and undermining the peso.

Officials and executives are now talking about different alternatives to solve the problem. One of them is to change the legal format of puts, allowing banks to exercise them only when they demonstrate extreme liquidity needs, said the people.

The Central Bank and the commercial banks involved didn’t immediately respond to a request for comment, except for Macro, which declined to respond.

The Central Bank had used the puts to encourage demand for domestic debt sales. In that sense they worked, with the banks’ exposure to the public sector increasing to 27 percent of their assets in March, from 17 percent in the same month of the previous year, according to official data.