Allfirst expects no cuts in jobs

State Senate panel is reassured over effects of huge loss

No branches to close

February 13, 2002|By Robert Little and Bill Atkinson | Robert Little and Bill Atkinson,SUN STAFF

A senior official with Allfirst Financial Inc., summoned before the state Senate Finance Committee to explain the bank's surprise $750 million trading loss, reassured legislators yesterday that deposits were not affected, branches will not close and no employees will lose their jobs.

George F. Cormeny Jr., an Allfirst senior vice president, offered few details about the bank's investigation into the losses, but said customers should not worry about the state-chartered bank's solvency.

"In a very general sense we have been hurt by this incident, but we will survive," Cormeny told members of the committee. "No customer funds were involved, no customer accounts were involved, no customer has sustained any loss."

Allfirst continued piecing together details yesterday about how currency trader John M. Rusnak allegedly lost $750 million while conducting what bank officials called fraudulent trades.

A spokesman offered no new details, saying bank officials are awaiting the outcome of an internal investigation being conducted by Eugene A. Ludwig, a former Clinton administration regulator who was hired by the bank Sunday.

Rusnak, 37, has not been charged with any crime. His attorney, David B. Irwin, repeated the assertion yesterday that Rusnak has not profited from the bank's losses. "My client is at home with his wife and kids, trying to put his life back together," Irwin said.

Cormeny, who serves as Allfirst's lobbyist in Annapolis, was called before the committee by senators worried about the effect a $750 million trading loss might have on the company.

Allfirst is among the top 50 largest commercial banks in the country with $17.7 billion in assets and a work force of 6,000. Allfirst took over banks with roots that go back nearly 200 years in Maryland

"I just want to know that our depositors in Maryland are protected, and to make sure that we're not going to have banks closing or offices closing," said Sen. Thomas L. Bromwell, a Baltimore Democrat and chairman of the Finance Committee. "This old-time Maryland corporation has a lot of Maryland employees and we want to make sure they're protected, too."

Cormeny offered handouts showing that Allfirst's ratio of debt to capital is within comfortable limits, despite the loss.

Allfirst's high credit ratings have not changed, he said, although the company remains on "credit watch" with the top credit-rating agencies until the investigation of the loss is completed.

Shortly after the loss was made public last week, some of the bank's customers and potential customers seemed to recoil and expressed concern, Cormeny said. But the effect was short-lived, he said, and the bank has not detected any widespread loss of confidence among customers.

"Was it substantial? No, it was small," Cormeny said.

Mary Louise Preis, Maryland commissioner of financial regulation and the state's top banking regulator, also reassured committee members that she is "absolutely confident that depositors are fine."

"Although it sounds like a huge, huge sum to us," Preis said, "Allfirst is a very large bank."

Preis was told about Allfirst's losses Feb. 5, a day before they were revealed to the public. Since then, two members of her staff have been investigating the incident and reporting to her.

Preis' examiners are part of a large team of state, federal and corporate investigators, including FBI agents, who are poring over Allfirst's books in Baltimore to determine what went wrong.

Allfirst's parent corporation, Allied Irish Banks PLC, has called in more than a dozen investigators. The probe is being lead by Ludwig, a former comptroller of the currency, who is expected to submit his report March 9.

"We all have the same questions: What happened? Why did it happen? How did it happen? How could it happen?" said Preis. "And those answers aren't immediately available."

Senators also questioned Preis' role in regulating Allfirst.

Allfirst switched three years ago from a federal to a state charter, giving Preis' agency primary responsibility for regulating it.

"I could never figure out why they did that," said Sen. George W. Della Jr., a Baltimore Democrat. "Then this thing pops up and I wonder whether things would have been better the way they were before."

Preis said the switch had little practical effect on the amount of government oversight of Allfirst, noting that state examiners conduct yearly audits using standards roughly identical to those of federal regulators. The bank is also regulated by the Federal Reserve System.

Bert Ely, a banking consultant in Alexandria, Va., said in a telephone interview that he expects the Federal Reserve to "lash back" at Allfirst and its Irish parent with penalties, which could include fines and limits on further expansion.

"I would expect pretty serious retaliation by the Fed," Ely said. "Allfirst and AIB have embarrassed the Fed big time. The Federal Reserve should have caught this in their examination and they didn't."

Sun staff writer William Patalon III contributed to this article.

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