Ailing culture hobbled Allfirst, insiders say

Managers' priorities, inexperience left bank vulnerable, they say

March 17, 2002|By Bill Atkinson and Julie Bell | Bill Atkinson and Julie Bell,SUN STAFF

Susan C. Keating made a grand entrance after she joined the bank that was to become Allfirst Financial Inc.

Top-producing bank employees at an invitation-only weekend retreat gazed up from the lobby of an Ocean City hotel as Keating appeared on a second-floor balcony, recalled a former bank employee who was present.

Then-Chief Executive Frank P. Bramble's introduction of Keating left no doubt that his new head of retail banking -- and, ultimately, heir apparent -- was someone to embrace.

"You will all love Susan Keating," Bramble belted as he wound up his superlative-laced remarks from the balcony at the bank-sponsored weekend in 1996. "You will all love Susan Keating."

But interviews with current and former employees over the past six weeks and a report issued by Eugene A. Ludwig, former U.S. comptroller of the currency, reveal that the culture at Allfirst under Bramble and Keating left the bank fertile ground for a trading scandal that cost it $691.2 million.

Foreign currency trader John M. Rusnak, accused of running up the losses over five years, was taking advantage of a Baltimore bank already victimized by a lack of management expertise in key areas, high executive turnover and a focus on cost-cutting that sometimes took priority over internal controls, the interviews and the report show. The bank was struggling under pressure to improve its middle-of-the-pack performance, they say.

The culture inside Allfirst's South Charles Street headquarters -- from its plush 22nd-floor executive suite on down -- was one in which managers feared for their jobs if they didn't make the numbers, in which cost-cutting pitted one department against another, and in which ideas languished in endless meetings, they say.

It also was one in which senior executives at times appeared to focus more on the minutiae of decorations and public relations than they did on the fundamentals of banking, they say.

In the view of many, the bank's top two officers, Bramble, now chairman, and Keating, president and chief executive, ultimately did not provide the necessary leadership.

"There was so much pressure on earnings," one former Allfirst executive said, "they were ignoring the risk."

Allfirst represented endless possibilities for Allied Irish Banks PLC when the Dublin, Ireland-based company acquired it in 1989. Allied Irish hoped Allfirst would give it a foothold from which to grow in the vast U.S. market.

The pressure to perform was intense. And Allied signaled its intention to keep a closer watch on Allfirst's profits, sending Dublin native David M. Cronin to take over as treasurer of the Baltimore bank. Cronin was fired last week after Ludwig delivered his report to Allied Irish.

"It seemed logical and reasonable when they had made a substantial investment that, in effect, they should have one of their own people in the executive vice president area," one former senior Allfirst executive said. "They picked treasurer because it involved watching the flow of money."

But Allfirst insiders greeted Cronin as though he were a "spy," Ludwig's report noted.

Pressure to perform is common in banking. But at Allfirst, it was different. Top bank executives, intentionally or not, instilled a fear that those who came up short could be demoted or fired, a former executive said.

"There is pressure to perform everywhere, but the issue was unrealistic budget numbers that were set given market conditions," said another former senior executive, who requested anonymity. "If you sat at a budget meeting or before the CFO [chief financial officer] for a review and said that sales were less than the prior year, that just wasn't acceptable. You just had to find a way to find increases. People cut corners."

The pressure didn't only come from within, but from Allied Irish's headquarters, too.

"The pressure would come from across the pond: `You've got to make your numbers,'" another former Allfirst executive said.

If an executive didn't increase profits, employees heard the "beating drums" -- code among them for imminent demotion or dismissal.

Keating's ability to elegantly demote or fire people even earned her a nickname within the company -- "the velvet hammer."

A number of top executives -- some on the company's management committee -- left. They included Jerome W. Evans, chief financial officer; Walter R. Fatzinger Jr., head of the trust company; Jeffrey D. Maddox, head of acquisitions and strategy; and Jennifer W. Reynolds, president and chief investment officer of the mutual fund unit.

A close and trusted confidant to Bramble, Thomas D. Fitzsimmons, was escorted out of the building by the head of security on Keating's orders, several people said.

Bramble, who will retire in June, and Keating refused requests for face-to-face interviews.

In a telephone conversation, however, Keating said: "I think those criticisms are inappropriate and misplaced. My leadership and performance speak for itself."

It is the bank's performance that many in the industry call into question today.

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