By Saabira Chaudhuri 

Argentina has asked Bank of New York Mellon to resign as its trustee, the latest salvo in what has turned into a protracted headache for the trust bank.

In an advertisement published Monday in The Washington Post, Argentina said it has sent BNY Mellon a letter formally requesting the bank to immediately hand in its resignation because it is no longer eligible to serve as Argentina's trustee.

Last month, Argentina's central bank revoked the New York company's authorization to operate an office in the country. Before that, a group of hedge funds holding Argentine government bonds sued BNY Mellon in London over interest payments they are owed by the Argentine government, whose payment was blocked by a U.S. court order. BNY Mellon, whose job has been to collect interest payments and distribute them to investors, has been caught between fulfilling its obligations as Argentina's trustee bank and obeying a U.S. court order.

Argentina in July defaulted on $539 million of interest payments due July 30, after U.S. District Judge Thomas Griesa ruled the bank couldn't pass Argentina's funds onto investors holding Argentina's restructured debt until the country pays hedge funds holding out for payment on bonds defaulted on in 2001.

Monday, Argentina said if BNY Mellon doesn't resign, the bondholders and Argentina are both entitled to remove the bank as trustee and appoint another trustee as BNY's successor. It said that given that BNY Mellon no longer has a trustee or office in Buenos Aires, it is no longer eligible to be Argentina's trustee.

"BNY Mellon has consistently followed the binding court orders that govern its actions as trustee in this matter," said a spokesperson for the bank. "BNY Mellon remains eligible to serve as Trustee for the Exchange Bonds under the terms of the Indenture, and will continue to comply with binding court orders that govern its actions as Trustee in this matter."

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

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