Allied Irish gets report on Allfirst

But results of probe into $691 million loss for now a mystery

Release by tomorrow

Firings at Md. bank may be necessary `to regain confidence'

March 13, 2002|By Andrew Ratner | Andrew Ratner,SUN STAFF

DUBLIN, Ireland - Bankers and brokers in starched white shirts and suit pants were dashing along Lower Baggot Street yesterday afternoon to find the first storefront with a live telecast on.

News about the probe into rogue trading in Baltimore that wounded Allied Irish Banks PLC? No, the crowd was anxious to catch up with the third race at Cheltenham in England.

"You want to find a crowd in Ireland, look for the horse race," said one. "The Allied thing? Oh yeah, I'll catch it on the news on the telly tonight."

The investigation into the trading scandal at Allied's Baltimore subsidiary, Allfirst Financial Inc., struggled to compete with a horse race yesterday as the boards of both banks met late into the night behind closed doors.

They heard the results of the past month's investigation by Eugene A. Ludwig, a former Clinton appointee and federal bank regulator. Allied hired him to help unravel the alleged scheme by Allfirst international currency trader John M. Rusnak that cost the bank $691.2 million dating back to 1997.

The meeting concluded at 11 p.m. Dublin time, 14 hours after it started.

Security was heavier than usual at the bank headquarters in Dublin's Ballsbridge section, and also at the nearby $400-a-night hotel where visiting board members from Allied and Allfirst were staying.

The boards are expected to resume their closed-door deliberations today. Allied expects to release information about the investigation and remedies by tomorrow, a spokeswoman said.

Although it's speculation, analysts, industry experts and much of the European press have already guessed an outcome.

They believe that Allfirst Chairman Frank P. Bramble and Chief Executive Officer Susan M. Keating will be forced to resign or face dismissal. They were in the meeting and unavailable for comment last night.

Allfirst Treasurer David M. Cronin's exit also is widely assumed. His undoing, many said, was his e-mail response last May to Michael Buckley, Allied's chief executive officer.

Cronin reported to Buckley that Allfirst currency trading levels were not a problem. Buckley had inquired after someone told him the level of trading seemed amiss, a bank source said.

Cronin's picture graced the front of the Irish Independent newspaper yesterday morning above the caption, "Cronin: faces chop."

Michael D. Colglazier, Cronin's attorney in Baltimore, yesterday by e-mail said that his client had no comment and is awaiting the report.

"We are aware that institutional and political objectives often eclipse notions of fundamental fairness," Colglazier added.

"Something has to happen to regain confidence in the company," said Stuart Draper, head of research at Dolmen Securities in Dublin. "My feeling is that Buckley checked and the information he was given was inaccurate. The fault lies in [Allfirst's] direction."

"I don't think there's a body count as such, but people obviously expect action," said another analyst in Dublin who declined to be named.

"The bank's credibility obviously has been dented and investors will want to see them taking it seriously. The two senior people in the U.S. are probably on the way out. That's what they get $1 million for. They're not there for the good of their health. That's the nature of the job."

Ray Kinsella, a business professor in the graduate school at University College Dublin, also expects top-level dismissals at Allfirst as well as recommendations from Ludwig to remedy Allied's trading oversight. But Kinsella offered a slightly more sympathetic - and broader - view of the controversy.

"Instead of a culture of compliance, you have a culture of commission," said Kinsella, referring to the six-figure bonuses Rusnak and his superiors earned, in part from his profits made betting on the fluctuations of foreign currencies.

Kinsella, an author on banking controls and a former official with the Central Bank of Ireland, believes that the Allfirst scandal, the precipitous plunge of the Texas energy trading giant Enron Corp. and turmoil in the accounting industry are all rooted in companies wanting to hold on to the very comfortable gains they made during the booming market of a few years ago.

"The whole debacle comes back to some poor guy sweating at night because he didn't have a way out," Kinsella said, referring to Rusnak, 37, of Mount Washington. Rusnak has cooperated with FBI investigators, but did not provide information for Ludwig's investigation on the advice of his attorney.

Kinsella also believes that more such breakdowns will surface because banking is becoming more global, but without the equivalent of global regulators to hold it in check. Officials in Maryland, for example, have already acknowledged that they were undermanned and ill-equipped to monitor trading complexities at Allfirst, a state- chartered bank.

"Banking has migrated to international frontiers, but there's no sheriff," Kinsella said. "You're not going to exorcise original sin from the banking system."

Opinions are split on whether the Rusnak affair will lead Allied to sell Allfirst, which operates about 250 branches in Maryland, Virginia, Pennsylvania, Delaware and the District of Columbia.

David Odlum, an analyst with NCB Stockbrokers in Dublin, believes that yesterday's board meetings begin an "endgame" for Allied's U.S. subsidiary.

Allfirst's returns have lagged behind Allied's operations in the United Kingdom, said Draper of Dolmen Securities, who also foresees a sale of Allfirst this year.

But Kinsella believes that Allfirst has been a "brilliant move" for Allied, one of Ireland's two largest banks, with little room to expand in this island nation.

"In the mid-1990s, Allied had to make a choice in Maryland. Should they cut and run, or stay and build? They stayed and built up significant market share," he said. "It's highly unlikely that they'll be forced to unload the U.S. operation. I cannot see a voluntary removal from the states."

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