By Nate Raymond and Joseph Ax NEW YORK (Reuters) - A U.S. appeals court signaled its displeasure with Argentina on Thursday as Citigroup Inc (N:C) warned it faces "serious and imminent hazard" if it follows a judge's order not to process an upcoming interest payment due to bondholders.
The bank urged the 2nd U.S. Circuit Court of Appeals in New York to reverse a judge's ruling blocking payments on $8.4 billion in bonds issued under Argentine law following its 2002 default.
Citigroup faces regulatory and criminal sanctions by Argentina, which defaulted again in July, if it cannot process the $5 million payment by Sept. 30, said Karen Wagner, Citigroup's lawyer.
"Citibank Argentina faces a serious and imminent hazard," Wagner said.
"If we obey, we have a gun to our head, and the gun will probably go off," Wagner said. "I ask this court, what good will that do? It won't change what Argentina does."
But some panel members questioned why they should consider Argentina's position when the country was taking steps, including passing legislation, to avoid complying with orders that it pay $1.33 billion plus interest to creditors suing for full payment on defaulted bonds.
"I'm not sure why we're even listening to this," said Circuit Judge Reena Raggi. "Your client is the person or entity holding the gun to Ms. Wagner's client's head."
Wagner said Citigroup will "undoubtedly" get another transfer of money from Argentina by Sept. 30. She stressed the risks the bank faced, though she said the bank would follow any order upholding the injunction.
(Reporting by Nate Raymond and Joseph Ax in New York; Writing by Daniel Bases and Noeleen Walder; Editing by Meredith Mazzilli and Cynthia Osterman)