Allfirst posts quarterly profit after fraud-related charges

Deposits up, mortgages down

revenue rises 8%

May 16, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

Allfirst Financial Inc. reported yesterday that it made $37.8 million in the first quarter after the revelation in February that it had lost $691.2 million in a trading scandal that lasted five years.

The Baltimore-based banking company, a subsidiary of Allied Irish Banks PLC in Dublin, Ireland, would have made $55.4 million in the quarter that ended March 31, but it took an $11.1 million charge for foreign exchange fraud losses and a $6.5 million charge for investigations related to the fraud.

Without the charges, net income would have risen 4 percent in the quarter compared with the corresponding period a year earlier, the company said.

"I think overall that the trend in income growth ... is positive," said Jonathan Gollins, a banking analyst at Banc of America Securities in London. "To be honest ... there is no reason why business as usual shouldn't resume pretty quickly."

Allfirst, which had assets of $17.9 billion at the end of the quarter, said total revenue in the quarter was $226 million, 8 percent higher than in last year's quarter.

Loans were flat at $10.7 billion because the company is winding down its indirect automobile lending and leasing business, which totaled $600 million, down from $1 billion a year earlier. Also, residential mortgages declined, as the company planned, to $453 million in the quarter from $630 million last year.

Core deposits, including savings, checking, money market accounts and consumer certificates of deposit, totaled $9.9 billion, 3 percent more than in last year's quarter.

"In light of the challenges of the first quarter, they are really admirable results," said Susan C. Keating, Allfirst's president and chief executive officer. "Despite the difficulties ... associated with the fraud ... we are well-positioned to rebuild the momentum that we actually gained in 2001."

Allfirst said Feb. 6 that employee John M. Rusnak hid millions of dollars of losses trading currencies.

An internal investigation, led by Eugene A. Ludwig, a former top U.S. banking regulator, concluded last month that Allfirst's oversight and controls were lax and that Rusnak's trading wasn't carefully scrutinized.

Six employees were fired, and Allied Irish named one of its executives, Eugene C. Sheehy, chairman of Allfirst. Sheehy replaced Frank P. Bramble, who retired April 30.

The scandal sparked speculation that Allfirst, or even Allied Irish, might be sold. It also caused Allfirst to incur a $36.8 million loss last year. The bank would have made $200.5 million, 12 percent more than in 2000, if not for the loss. The bank also had to restate earnings for the previous four years.

Keating said that during the scandal "we had minimal impact to current relationships. There was a slowdown in prospective business." But Allfirst now is "getting lots of new business."

Allfirst's deposits dropped about $100 million in the three to four weeks after its announcement, but it is uncertain how much of that is attributable to the scandal.

"We are absolutely confident that our deposit base is absolutely rock solid," said Maurice J. Crowley, Allfirst's chief financial officer. "The customer stuck with us."

Allfirst expects enforcement action by its primary banking regulators as a consequence of its foreign exchange trading losses, according to the quarterly financial statement it filed with the Securities and Exchange Commission yesterday.

The company also might face SEC enforcement action.

"At this time there is no active dialogue with the SEC," Keating said.

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