Experts: Rogue trades hard to spot

The scale of the trades should have set off alarm bells among the bank's senior executives, experts say

By CNN's Diana Muriel

LONDON, England (CNN) -- According to Allied Irish Bank's latest advertising campaign, "Anything is possible."

But a $750 million hole in its accounts was not quite what the bank had in mind.

Trader John Rusnak -- at the centre of fraud allegations -- is cooperating with authorities in the investigation currently under way.

But questions remain over how AIB failed to notice the enormous losses he's alleged to have racked up over 12 months.

Despite changes implemented after previous banking scandals, experts say it's still tough to spot rogue trades.

MORE STORIES • A rogue's gallery of trading  • Leeson: 'Rusnick was living a lie'  • Profile: Trader a 'churchgoing family man'  • Irish bank sets crisis meeting    VIDEO A $750 million hit: CNN's Allan Dodds Frank reports (February 7) Play video (QuickTime, Real or Windows Media) Investigating the missing millions: Paul McGowan from Dolmen Butler Driscoe explains (February 6) Play video (QuickTime, Real or Windows Media)   EXTRA INFORMATION More business news from CNN.com Europe    QUICKVOTE Are banks doing enough to stamp out fraud? Yes No View Results

"I think a lot was learned after Barings, as a lot was learned after Sumitomo, as a lot was learned after NatWest," says Matthew Saunders of the international law firm DLA.

"But traders are competitive, bright and ingenious, and they on occasions find their way around the checks and balances that have been put in place."

Rusnak was trading in dollar-yen positions; the yen has lost around 10 percent of its value in the past 12 months. To lose $750 million, Rusnak must have been trading positions of around $7.5 billion.

There are very few hedge funds that deal at that scale.

For instance, currency traders say the size of the positions taken out were on a scale with George Soros -- the multi-billionaire foreign exchange guru who brought the British pound to its knees and forced it from the European Exchange Rate Mechanism in the 1990s.

For small conservative Irish bank to be engaged in this activity, experts say, alarm bells should have been ringing with senior management.

"With the rewards comes responsibility, and senior management have got to look at what is happening beneath them," says Chris Owens of financial security consultant NobleStreet. "If they are going to take the rewards, they've got to take the punishment."

And punishment is what AIB is getting, suffering a sharp fall in its share price.

But the bank is expected to recover from these losses. Its trading operations in Baltimore, where Rusnak was based, made less than 3 percent of the group's profits last year.

The real damage has been to its reputation -- and to public confidence in the ability of banks to control their own traders.