In a deal that underscores its growing interest in Latin America, Chase Manhattan Corp. has arranged a $6 billion standby emergency credit program for Argentina's central bank.
Bankers said the high-profile program announced last week represents the first such transaction ever structured by commercial banks to provide liquidity to a foreign central bank.
A similar standby facility was made available to Mexico after that country's financial crisis, but that deal was organized and backed by the central banks of leading industrialized countries.
Twelve commercial banks and investment banks have joined Chase in the syndicated facility. They include BankAmerica Corp., Merrill Lynch & Co., Salomon Inc., Credit Suisse/First Boston, Deutsche Morgan Grenfell, Dresdner Bank, ING Group, Lehman Brothers, Societe Generale, Swiss Bank Corp, Union Bank of Switzerland and West Merchant Bank.
Argentina will pay the banks $18 billion in commitment fees for commitments that run two to five years, depending on the bank.
The facility will only be used to provide liquidity to the Argentine banking system in the event of a run on deposits in that country. Argentina suffered one of the worst banking crises in history last year when $8.8 billion, or some 17% of all deposits, fled the system after a loss of confidence when the Mexican peso collapsed in December 1994.
Under the deal announced last week, Argentina will provide liquidity to local banks, taking government securities owned by the banks as collateral. The securities will in turn be pledged to the foreign banks backing the program, which will provide the funds Argentina needs to meet any run on deposits.
Donald H. Layton, vice chairman at Chase, noted that Argentina had little alternative to the program, since under Argentine law the central bank can circulate additional currency only if each peso it prints is backed by dollars or other hard currency.
"You have to put the cost of the facility in relation to what the crisis cost us in terms of production," said Pedro Pou, president of Argentina's central bank. He estimated that Argentina lost 5% of its annual gross national production, or some $15 billion, as a result of the crisis.
The facility, combined with $12 billion in reserves in Argentina, covers around 30% of the approximately $60 billion in deposits in Argentina. In the event Argentina needs to use the program, it will pay banks the London Interbank Offered Rate plus 2%.
Over the last several years, Chase has emerged as a major player in Latin American wholesale finance. According to Loan Pricing Corp., a New York-based data company that tracks bank lending, Chase arranged $3.7 billion in loans to Latin borowers over the last nine months this year, ranking as the second-largest agent in such deals.
BankAmerica took the No. 1 agent spot, with $4 billion in loans. Citicorp ranked third, with $3 billion, ABN Amro N.V. fourth, with $1.9 billion. J.P. Morgan & Co. was fifth, with $1.8 billion.
Mr. Layton did not rule out similar transactions for other countries in the future.
"We have a giant emerging markets business," he said. "This is absolutely a priority for us."
