Irish bank sets crisis meeting

February 7, 2002 Posted: 1146 GMT

Ireland's largest bank Allied Irish Banks will hold a crisis board meeting today after a U.S. currency trader accused of defrauding it of up to $750 million (530 million pounds) denied taking the money.

John Rusnak, the trader at the centre of the scandal which pushed down AIB's share price by some 23 percent on Wednesday in markets already shaken by the collapse of U.S. energy giant Enron, said through his lawyer he had never gone missing and was talking to federal authorities in Baltimore.

The meeting at Allied Irish bank's plush headquarters in Dublin on Thursday would try to determine "the complexity of what is involved and why the systems did not work and whether some people didn't do their job", AIB chairman Lochlann Quinn said.

Allied Irish has said Rusnak, a middle-ranking dealer known as a family man and a pillar of his community, tried to disguise huge dollar/yen foreign exchange losses at its U.S. unit Allfirst Financial in Baltimore with fictitious trades.

AIB contacted the FBI to help find Rusnak after a review by the bank raised questions about his trades. But lawyer Bruce Lamdin told Reuters by telephone that Rusnak and his attorney David Irwin held talks with the U.S. Attorney's office in downtown Baltimore.

Lamdin denied Rusnak had gone missing. "He's been home with his family, quite frankly," he said.

The U.S. Attorney's office was not available to comment.

The suspected fraud was the largest of its kind since derivatives trader Nick Leeson brought down blue-blooded British bank Barings.

Irwin earlier said his client did not steal from Allied Irish. "If they're claiming that he stole money, that won't pan out. I'd be surprised if they ever came up with evidence that he stole money," he said.

The FBI told Reuters it had not issued a warrant for Rusnak, who lives with his wife, Linda, and two children in an affluent Baltimore community.

Peter Gulotta, special agent for the FBI's office in Baltimore, said the FBI was conducting a bank fraud and embezzlement probe.

Allied Irish said it suspected "internal and external collusion" and it stressed the bank was in no danger of collapse.

"This trader isn't bringing down this bank," Allied Irish Group Treasurer Pat Ryan, who was sent to the United States to take over the treasury functions at Allfirst, told a Baltimore news conference.

Allied Irish shares rebounded three percent on Thursday. In early trading, they stood at 11.71 euros in Dublin, up 0.36 euros, while in London they rose 40 pence to 11.7 pounds.

ANALYSTS MIXED

Analysts had mixed reactions to the stunning news of the suspected fraud, with some seeing it as a major black spot for Ireland's biggest company while others said AIB, because of its size, could absorb the loss.

KBC Securities, saying that the fraud would diminish 2001 profit by 60 percent, lowered its rating on AIB to "reduce" from "accumulate".

But SG Securities said the market had over-reacted in selling the share down, putting the loss at equivalent to six percent of AIB's market capitalisation, and maintained a "buy" recommendation.

Experts said banking controls would again come under the spotlight. The industry had hoped it had closed the gaps laid bare by Barings's collapse in 1995, when Singapore-based trader Leeson lost more than $1.0 billion in unauthorised trades.

"We don't know whether (Rusnak) got away with anything," said Allied Chief Executive Michael Buckley. "It's conceivable he got away with something; it's possible he may have had accomplices who got away with something."

Leeson, sentenced to 6-1/2 years in jail, wrote in Britain's Mirror daily he was surprised loopholes remained in financial security.

"I'm shocked nothing has been learned from my case and the same thing has been allowed to happen," he said. "It's staggering that financial security at these huge firms is so lax. Where are the checks and regulatory audits?"

Credit rating agency Fitch said the scale of the suspected fraud cast doubt on management and supervision, while Standard & Poor's said it was considering a downgrade.

The Irish Central Bank said it was satisfied that Allied Irish was financially sound.

The bank said that Rusnak was part of a two-person foreign exchange trading operation at Allfirst that had annual revenues of less than $10 million.

It did not identify the other person from that operation, but said he had not been suspended.

Foreign exchange chatrooms were buzzing with speculation about Rusnak's losing trades. The most popular theory was that the Baltimore-based trader had bet the wrong way on the Japanese yen which has fallen 15 percent against the U.S. dollar since the start of 2001.

A bank spokesman confirmed the trades were in dollar/yen.

Allied Irish said it had halted foreign exchange trading at Allfirst and suspended several executives. It warned that its attributable profit for 2001 would slump to 401 million euros from 997 million a year before.