Baltimore case adds to unease in Ireland

Largest corporation sees its U.S. bank join list of financial scandals

February 07, 2002|By Will Englund | Will Englund,SUN STAFF

In Ireland yesterday, the Allfirst fraud would have been bad enough simply because it was so huge and such a total surprise - and came from such an unexpected corner. But, coming on the heels of so much other bad news there, it was perhaps inevitable that the prime minister himself would feel the need to reassure the nation.

There is "no danger," Bertie Ahern told the Dail, or parliament, to the solvency of Allied Irish Bank. But politicians and analysts alike were wondering how a rogue operation in such a distant and obscure part of the AIB world - Baltimore - could have done so much damage to a bank that only last week became Ireland's biggest company.

"This is certainly a big blow to the image of the Irish stock market," said Cliff Taylor, the former financial editor of The Irish Times.

Ireland is coming off a great decade. The country bloomed in the 1990s as it never had before, and for several years the economy had the highest growth rate in Europe. It was a complete transformation from the stagnant, backward-looking past. Ireland feasted on the dot-com bonanza, and for the first time in its history more people moved into the country than out of it.

But that was the 1990s. In the past two years old-fashioned corruption scandals have called into question the "transparency" of the new economy, and the collapse of Internet companies hit Ireland hard.

Last year, foot-and-mouth disease drove tourists away, and when the U.S. economy contracted after Sept. 11, Ireland's followed suit.

But now there are more immediate and specific debacles.

Already this year, one of Ireland's 10 largest companies - a distribution firm called DCC - was hit with serious allegations of insider trading.

That was a warm-up, though, to what happened last week. A pharmaceutical company called Elan, which up to then had been the country's biggest firm, was caught in accounting irregularities that analysts in Dublin have likened to Enron's.

Elan's stock abruptly lost 80 percent of its value. That's what pushed AIB into first place.

At the beginning of the year, Elan and AIB together accounted for 40 percent of the value of the Irish stock market. Now, with Elan in a state of collapse, shares of AIB were falling 17 percent yesterday on the local market, and brokers were putting out sell recommendations for today.

Some said the falling price made the bank vulnerable to a takeover.

"To have these world headlines coming out won't improve the image of the market," Seamus Murphy, an analyst with Merrion Stockbrokers in Dublin, said yesterday.

Charlie McCreevy, the minister of finance, emerged from a session of parliament and said, "They are two Irish companies that have been associated with Irish success. So anything that affects them affects the image of Ireland."

Allied Irish Bank does not fit the image of a buccaneering, risk-taking investment bank. In Ireland it's what they call a "High Street" bank - a retail customer-oriented institution.

But the bank has two main foreign ventures of a very different nature, although until yesterday only one of them had raised serious concerns. That was the effort to expand its operations in Poland. Now the U.S. branch is looking a lot riskier.

What Irish analysts were wondering yesterday was this: How could the bank have allowed an operation in Baltimore, of all places, in a state they insisted on calling "Mary Land," to have gotten so devastatingly out of control?

"It is certainly dangerous to have major trading operations like that located so far away from the center of power," Jim Power, an economist at Friends First, told the RTE broadcast network.

It is typical of such scandals that they take place far away from the "centers of excellence," Briain McCaba, owner of a foreign exchange software firm, told RTE. "I'd imagine that AIB's treasury activities in Dublin, in New York, are well-controlled," he said.

"It is a heavy blow, but I want to make the point very clearly that it's a blow we'll recover from," Michael Buckley, group chief executive of AIB, told a news conference in Dublin yesterday. Analysts in Dublin agreed with him that the bank should be able to recover, but there were fears that AIB doesn't really have a grip on the full extent of the problem.

How, for instance, did Allfirst manage to launch an investigation two weeks ago but keep it secret from Dublin until Monday?

The AIB board is scheduled to meet today, in an atmosphere of pain and indignation. The board chairman, Lochlann Quinn, described himself yesterday as "incredulous." Parliament is sure to return to the question, though opposition leaders said they were trying to find a way to raise the issue without undermining whatever public confidence remains. Ireland is in for an unhappy season.

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