Experts predict firings, changes near at Allfirst

Parent bank slated to assess findings from internal probe

March 09, 2002|By Julie Bell and Bill Atkinson | Julie Bell and Bill Atkinson,SUN STAFF

In a downtown bar off an alley in Baltimore's financial district, a small gold plaque bears testimony to the fact that Allfirst Financial Inc.'s currency traders were the stuff of legend.

"Joe O'Sullivan drank here," it says, naming the man who helped set up and run Allfirst's trading operations before moving back to Ireland to work for the bank's Dublin-based parent company. It concludes in Gaelic: "We will never see his likes again."

The plaque, dated 1986, honors a man who once drank heartily after work with Allfirst trader John Rusnak and other friends at Peter's Pour House.

But those heady days for Allfirst's traders might be gone for good.

Now those at Peter's Pour House are watching Dublin as scandal moves across the Atlantic. A little more than a month after Allfirst and its parent, Allied Irish Banks PLC, revealed that Rusnak lost $691 million in foreign exchange trading, Eugene A. Ludwig is scheduled to present the results of his internal investigation to directors of both companies at Tuesday's board meetings in Dublin.

A former top U.S. banking regulator hired by Allied four days after the scandal broke last month, Ludwig was charged with confirming the bank's losses, figuring out how they happened, recommending solutions so the problems never occur again, and deciding who, if anyone, should be fired.

Ludwig has declined to comment before the meetings.

"The question is, who gets punished?" said Bert Ely, a veteran banking consultant based in Alexandria, Va.

Those with jobs on the line, he believes, include Allfirst Chairman Frank P. Bramble, Chief Executive Officer Susan C. Keating, and Allied Irish Chief Executive Michael Buckley.

Rusnak, who lives in Mount Washington, has been cooperating with federal authorities and is implicating others at the bank, sources said.

Rusnak "seemed to have been living a life of deceit for some time," said Michael Colglazier, an attorney representing David M. Cronin, an Allfirst executive who has been suspended with pay pending the outcome of Ludwig's investigation.

"Perhaps it is not surprising that, given the current situation, whereas truth is an option, perceived self-interest is an imperative," Colglazier said.

He said that Cronin, executive vice president and treasurer of the bank, has been cooperating with the bank's investigation and that he has not been contacted by federal authorities.

Preliminary changes

The scandal has already resulted in changes at Allfirst.

The bank's trading operation has been mostly shut down by Allied. Some customers have pulled deposits, and Allfirst is trying to reassure clients that it is a sound institution. It now says deposits are up from a year ago.

The bank and Allied Irish are the subject of takeover rumors.

More revisions expected

When Ludwig meets with board members next week, his recommendations are expected to bring more changes. Those could come in foreign exchange trading, auditing, back office functions and internal controls, industry experts said.

"You have to start with what happened and how did it happen and who all had to be falling asleep at the switch in order for it to happen," said William Isaac, former chairman of the Federal Deposit Insurance Corp. and now chairman of the Secura Group, a Washington-based bank consulting firm.

Isaac believes that Ludwig will have asked: "Do we have the right tools, the right monitoring systems? Are the internal and external auditors looking at the right stuff? It may be personnel changes need to be made. Do we have the right people in the right positions? Do we have enough of them?"

Ely suspects that the trading desk could be shut down for good. He also said Ludwig could serve up a list of people to be fired, at least some of whom might be given the chance to announce their exits as resignations.

Allfirst would not say yesterday whether Bramble, a member of Allied Irish's board, will attend next week's closed meetings.

But Ely said it is unlikely that Bramble will be present for much of the discussions because it is his operation that is under scrutiny.

Several Allfirst executives have been suspended with pay. In addition to Cronin, they are Robert F. Ray, senior vice president of treasury funds management and Rusnak's immediate supervisor; Jan N. Palmer, senior vice president of investment operations; and Larry Smith, a clerk in the bank's operations unit.

The bank has not suggested wrongdoing on their part.

`It's a ton of money'

Allfirst revealed Feb. 6 that it suffered the huge currency trading losses. The bank blamed Rusnak, 37, of Baltimore, who was immediately suspended. It claimed that he skirted internal controls and used a "clever and sophisticated operation" to hide his mounting losses that went undetected for five years.

But The Sun, quoting unnamed sources, reported last month that some bank supervisors and executives knew that Rusnak was putting more of the bank's money at risk than Allfirst's guidelines allowed.

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