Financial institutions may distribute dividends again

The Central Bank of Argentina (“BCRA”) issued Communication “A” 4152 on June 2, 2004. The Communication revoked the general suspension for financial institutions to distribute dividends in effect since more than two years ago. However, the distribution of dividends must be previously authorized by the BCRA before it can be effective.

On April 22, 2002 the BCRA had issued Communication “A” 3574, which included the following provision, without any further clarifications: “Additionally, and until this institution (i.e., the Central Bank) establishes otherwise, the distribution of dividends is suspended”.

In addition to this general suspension, Communication “A” 3785 established two specific restrictions that were not modified by Communication “A” 4152. The specific restrictions are related to the compensation for the asymmetric pesification established by articles 28 and 29 of Decree No 905/2002. Thus, the distribution of dividends is specifically suspended for financial institutions that:

(i) register the bonds received – Boden 2007 in pesos and Boden 2012 in US dollars – as assets for their face value; and

(ii) have exercised the option to exchange the compensation bonds for promissory notes issued by the Government and hold those promissory as assets.

On January 17, 2003 the BCRA had issued Communication “B” 7683 reminding financial institutions that the suspension established in Communication “A” 3574 was still in force.

In accordance with Communication “A” 4152, in order to distribute dividends, financial institutions may not:

(i) be in any of the procedures established by articles 34 and 35 bis of the Financial Institutions Law (i.e. regularization, reorganization or restructuring proceedings);

(ii) receive any kind of financial assistance from the BCRA (known as redescuentos and/or adelantos); and/or

(iii) have neither their liquidity nor solvency affected by the distribution of dividends.

As established in Communication “A” 4152, in order to obtain the BCRA’s authorization to distribute dividends, financial institutions must file a letter requesting such authorization before the Superintendencia General de Supervisión y Seguimiento along with a draft of the proposed distribution of dividends, and any other information that may be considered relevant, at least 20 business days before the date of the shareholders’ meeting that would consider the distribution of dividends.

Finally, Communication “A” 4152 expressly establishes that the specific restrictions of Communication “A” 3785, that we mentioned earlier, are still in force.

In conclusion, financial institutions that (i) are not in regularization, reorganization or restructuring proceedings; (ii) do not receive any kind of financial assistance from the BCRA; (iii) would not have their liquidity or solvency affected by the distribution of dividends; (iv) do not register compensation bonds in investment accounts for their face value rather than market value; (v) have not exercised the option to exchange the compensation bonds for promissory notes issued by the government and do not hold those promissory as assets; and (vi) file a request for authorization within 20 business days before the date of the shareholders’ meeting that would consider the distribution of dividends, can distribute dividends in cash. However, such institutions must previously comply with Argentine general corporate provisions for distribution of dividends.