Report due on Allfirst trading losses

Executives' jobs thought on line in $691 million scandal

Summary likely this week

Review includes no new information from currency trader

March 11, 2002|By Andrew Ratner | Andrew Ratner,SUN STAFF

DUBLIN, Ireland - Board members of embattled Allied Irish Banks PLC and its Baltimore-based subsidiary, Allfirst Financial Inc., began arriving here last night to receive a report that many assume will cost several of them their jobs in the fallout from a scandal that erupted after the bank discovered that almost $700 million in losses had been concealed for five years.

The boards are scheduled to hear tomorrow from Eugene A. Ludwig, a former Clinton administration bank regulator.

Allied hired him last month to review the suspect transactions of Allfirst's top currency trader, John M. Rusnak, who the bank said amassed $691.2 million in losses. However, Ludwig's report does not include any firsthand information from Rusnak, who declined to cooperate with the bank's internal investigation on his attorney's advice.

Allied spokeswoman Catherine Burke confirmed that Rusnak, 37, of Mount Washington, was not interviewed for the Ludwig report. Rusnak, however, is cooperating with the FBI, which is investigating along with banking regulators from Maryland, the United States and Ireland.

The Allied and Allfirst boards are to receive Ludwig's account and recommendations and discuss them tomorrow and Wednesday. Some members are expected to be excluded from certain discussions because board members are to judge their actions in the matter.

The bank is expected to release at least a summary of Ludwig's findings and recommendations Wednesday or Thursday.

Ludwig, who met last week in the United States with Lochlann Quinn, chairman of the Allied board, is expected to fly into Dublin today.

Allfirst Chairman Frank P. Bramble and Chief Executive Officer Susan C. Keating were to check in last night at the swank Four Seasons Hotel across from the headquarters of Allied Irish.

Bramble, the highest-paid executive in the company, and Keating might lose their jobs, many analysts believe. Other executives named as being in jeopardy are Allfirst Treasurer David M. Cronin, and Pat Ryan, Allied's group treasurer and chief risk officer. Ryan had announced his retirement in January, shortly before the Rusnak story broke.

"I'd be very surprised if David Cronin, Susan Keating or Frank Bramble ... if any of those three survive this," said Jim Power, chief economist with Friends First Ltd., an investment manager in Dublin. "On this side of the water, it appears that Pat Ryan will be the sacrificial lamb."

The story of Rusnak's fast and furious currency trading has changed markedly since it broke early last month. Shortly after Keating alerted the parent bank in Ireland and FBI officials in the United States to the alleged fraud, Allied Chief Executive Officer Michael Buckley described Rusnak's alleged rogue trading as "complex" and possibly involving "collusion" to avoid detection by his superiors.

But reports in the United States and Europe during the past month have painted a different picture.

Rusnak's outsized trading levels, and losses, spurred concern within Allfirst perhaps as early as 1999. The problem might have been brought to Buckley's attention as early as May in an e-mail exchange with the Baltimore office, according to yesterday's editions of The Sunday Times of London.

Rusnak's borrowing against heavy losses also apparently raised eyebrows in the tight-knit currency trading community, in which he was reportedly dubbed "Johnny Ruz" by Asian traders.

Analysts expect Ludwig's report to criticize Allied's "hands-off" management of its U.S. subsidiary. That strategy had been viewed favorably by some analysts after several other European banks that entered the United States struggled after sweeping out local management. But Allied's trans-Atlantic oversight isn't receiving praise now. The Rusnak affair is cause for only some of the hand-wringing over Allied Irish here these days.

Because Ireland's largest bank was perceived to have been weakened by its trading scandal, the new head of the country's second-largest bank, the Bank of Ireland, suggested a merger last week to create an Irish "superbank" with an international presence. But the idea has been greeted coolly by some legislative and business leaders. They fear reduced competition would inflate banking fees, cost about 3,000 banking jobs in the country and force dozens of branches to close in villages and towns served by both major Irish banks.

"The view of the fund-management industry and pension industry is that the bank's management team is going to have to take action," said John Feeley, chairman of the Irish Association of Pension Funds, a lobby group in the Irish capital that represents 360 pension funds.

"They've done a reasonable job so far considering that the impact on the share price hasn't been that great," Feeley said. "It remains to be seen what the investigation will come up with."

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