Allfirst, parent to discuss findings of probe today

Boards hope to learn how $691 million lost

March 12, 2002|By Andrew Ratner, Bill Atkinson and William Patalon III | Andrew Ratner, Bill Atkinson and William Patalon III,SUN STAFF

DUBLIN, Ireland - Directors of Allied Irish Banks PLC and its Baltimore subsidiary will convene an emergency meeting here today to discuss the findings of an internal investigation into a scheme that resulted in $691 million in losses.

In an attempt to prevent leaks to the news media, copies of the confidential report weren't made available to the directors until yesterday.

The report, by Eugene A. Ludwig, a former top U.S. banking regulator, is widely expected to result in sweeping changes at Allfirst Financial Inc., and perhaps within Allied Irish.

The scandal has had an effect on Annapolis, where legislators are pushing a proposal that would allow the state to hire more examiners and bypass annual budget debates.

The state's top banking regulator has acknowledged that with just 14 examiners, the department can't handle the large workload and has imposed a temporary moratorium on banks converting to state charters.

Allfirst revealed Feb. 6 that it suffered the loss, which it blamed on currency trader John M. Rusnak, 37, of Baltimore, who was immediately suspended.

The bank alleges that Rusnak skirted internal controls to hide rising losses that went undetected for five years.

Rusnak is under investigation by the FBI and the U.S. Attorney's Office. Sources have said he is cooperating with federal authorities.

Ludwig, who was hired by Allied Irish four days after the scandal broke, arrived in Dublin last night.

Focus on treasury unit

Ludwig's examination has primarily focused on Allfirst's treasury unit, said a person close to the investigation. "It doesn't try to answer every question. It looks at the problem and puts a flashlight on the problem."

The investigation looked at how Rusnak lost the money, who inside the bank failed to detect the losses, and what measures Allied Irish and Allfirst must take to prevent a similar scandal again.

Ludwig also focused on the people who worked directly with Rusnak, including his superiors.

The report may recommend personnel changes in Allfirst's treasury unit, a person close to the investigation said.

In addition to Rusnak, Allfirst suspended four other bank employees: David M. Cronin, executive vice president and treasurer of the bank; 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 four have been suspended with pay pending the outcome of Ludwig's investigation. The bank has not suggested wrongdoing on their part.

May conversation

Leading up to today's meeting, much of the European media have focused on an exchange in May between Cronin and Michael Buckley, Allied Irish's chief executive officer.

A source in Dublin said someone commented to Buckley last spring, shortly after he became chief executive, that currency trading was unusually high at Allfirst.

Buckley called Cronin, who reassured him on the phone and later by e-mail that the trading levels were reasonable and that there was no need for "anxieties."

Michael Colglazier, a Baltimore attorney representing Cronin, said yesterday that Cronin gave Buckley the best information he had available at the time. The Allied and Allfirst computer systems didn't indicate a problem because Rusnak hadn't entered the information about his alleged trading scheme, Colglazier said.

Rusnak's name did not come up in the conversation, Colglazier and others said.

That communication, however, has been portrayed as a smoking gun in Dublin. Some accounts say it shows Allied executives were aware of a problem but failed to adequately follow-up; others suggest the episode could help Buckley save his job because it shows that he inquired early with some concern but was given an inaccurate response.

An Allied spokeswoman said last night that she expects Ludwig and Allied Chairman Lochlann Quinn to hold a media conference possibly Thursday after the boards meet.

Legislative proposal

The Allfirst trading scandal has given new urgency to a legislative proposal that would allow the state to hire more bank examiners, state officials said.

The legislation, House Bill 1322, was conceived before Allfirst revealed its losses. If passed, the bill would allow the Maryland Division of Financial Regulation to hire badly needed bank examiners out of a newly created special fund and bypass annual budget debates.

Though the bill has yet to be presented to the Senate, its sponsors see little reason that it won't become law July 1.

"I can't imagine anyone opposing it," said Del. Mary-Dulany James, a Harford County Democrat and a co-sponsor of the bill.

Office in crisis mode

The Division of Financial Regulation, which oversees state-chartered banks, is in a crisis mode: It has 14 bank examiners - down from the 19 it had before the state announced a hiring freeze and well below the 23 agency insiders and industry experts say the unit really needs.

The bill's passage would lead to an end to a state moratorium on new bank charters.

The fees paid by state-chartered banks to the Maryland General Fund let the governor decide how much money the Division of Finance is given to operate.

Gov. Parris N. Glendening has yet to announce his position on the bill.

"We have yet to take a position on it," said Michael Morrill, a spokesman for Glendening said. "It's still in the negotiations stage ... but we're not opposed to the concept."

Sun staff writer Michael Dresser contributed to this article.

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