Banks to recover paid legal protections

It has been confirmed that today the Supreme Court of Justice will deal with and enter judgment over pesification, closing all lawsuits. The important thing is that a final solution to one of the worst economic measures of history is far away. Nothing will be said with respect to the main issue, that's to say, whether pesification was constitutional or not. The sole aim is to put an end to lawsuits with a political rather than legal way out. In the first place, banks may want to recover large amounts of dollars paid to clients for legal protections. In pronouncement, the aim would be to stop this mode of proceeding, though it is not clear if it will happen. The judgment aims at ending with savers' lawsuits, but it does not close new actions for damages. By putting an end to lawsuits against pesification, the Court changes criterion adopted in San Luis and Smith cases, where pesification was declared illegal. What's for sure is that, with these new judges, re-dollarized rulings end, though not the problem.

Banks are waiting for the details of the ruling that the Supreme Court of Justice will reveal today so as to define whether they start demanding return of a portion of paid legal protections. In general, they will not insist on small savers, since it would be really hard to obtain something. These financial entities will focus on great firms and clients, which have collected millionaire sums.

In fact, it will all depend on what the ruling says. Legal sources say that the Court would explicitly forbid bringing actions against savers. According to Argentine Central Bank estimates, there are still around 50,000 unresolved legal protections. These are lawsuits over pesification of deposits in dollars, most of which have already reached the Supreme Court of Justice, while the rest remains in lower strata.

Every saver resorting to the law has his own situation. Some collected total complaint in dollars, some others got 50 per cent, while there are still a few ones waiting for a resolution.

Less intensity

"Dripping", as payments by banks to clients for legal protections were called, continued throughout 2006, though with less intensity than previous years. Until October, payments for ARG$600 millions had been posted, representing a total of ARG$60 millions a month.

From 2002 to the present, more than 333,000 legal protections were paid (partially or totally), involving a sum of ARG$23 billions. However, out of this total, banks consider that they have paid in excess around ARG$9.8 billions, that's to say, 42.6 per cent. We are talking about the difference present by then between pesified capital of deposits plus CER (Benchmark Stabilization Coefficient) with respect to dollar value in free market.

In the first place, the Court order would aim at cutting off the flow of legal protections. This means that savers would have no possibility of getting favourable measures from judges in lower and appellate courts, as it has happened since 2002. The main flaw that the first pesifying ruling had had in October 2004 was precisely failing to close completely doors to new lawsuits as well as unconstitutionality in lower and appellate courts. The main goal is to stop future actions, which does not look impossible. If pesification at ARG$1.40 plus CER plus 2 per cent annual is approved, it almost matches that value with current quote of free dollar.

Spread

However, it won't be easy to find a solution to paid legal protections, since, when banks were forced to face legal measures, the spread between pesified deposit and dollar in free market more than doubled the amount. In 2002 (when the highest number of preventive measures in favour of savers was observed), dollar on average settled at more than ARG$3.50 during the year and adjustment to ARG$1.40 plus CER offered less than ARG$1.80.

However, although this ruling will focus on "banking curbs" (that's to say, banks and clients problems), other situations remain to be solved, particularly, loans between private entities. In those cases, judges imposed "shared effort" criterion, that's to say, cut the difference. Therefore, a loan granted in dollars should be returned at ARG$2 per dollar. However, Congress keeps on discussing about this issue, with no final resolution yet.