AIB Discusses Ludwig Report Today

by Jason Gorringe, Tax-News.com, London

11 March 2002

After AIB Chairman Lochlan Quinn travelled to the US over the weekend to meet Eugene Ludwig, who has been writing a bank-commissioned report on the US$691 million (€795 million) fraud at AIB's US subsidiary, Allfirst, will be presented to the boards of AIB and Allfirst in Dublin today.

Decisions about who should take responsibility for the failure to detect the massive fraud over a five-year period are expected to be announced on Wednesday. It has become known that group chief executive Mr Michael Buckley learned of potentially high volume foreign exchange dealing in May 2001, according to AIB sources; yet little more than a week ago AIB rejected an Irish Times report that Mr Buckley contacted Allfirst last summer to inquire about the extent of foreign exchange dealing at the subsidiary.

According to the sources, the Ludwig report discloses that in May 2001, Mr Buckley questioned the head of the treasury operation at Allfirst, Mr David Cronin, about what was going on at Allfirst. Mr Cronin, who has been suspended on full pay pending the outcome of the investigation, is understood to have told Mr Buckley that because the bank was now using two prime bankers, the impression was created that transactions were larger than they actually were.

The fact that Mr Buckley asked for checks to be carried out may mean he keeps his job when the independent inquiry into the losses is presented to the bank's board this week. But critics argue that he should still have to bear ultimate responsibility for the failure of the bank's controls.

Analysts expect one or both of Frank Bramble, chief executive of AIB USA, or Susan Keating, chief executive of Allfirst, to resign. However, it remains possible that heads will roll in Dublin. Mr Rusnak has alleged to FBI investigators that Pat Ryan, the Dublin-based group treasurer, was aware of a high-risk trade that subsequently exacerbated his losses. This has been flatly denied by the bank.

Pending the results of AIB's investigation, possible suitors for the stricken bank are biding their time; but last week Michael Soden, new Chief Executive of the Bank of Ireland, told the Financial Times that the Bank of Ireland would like to merge with Allied Irish Banks to create a national champion.

"You can make compelling stories for getting the two organisations together," he said, "I believe it would serve financial services in Ireland, it would serve our shareholders and it would put us on a front foot going forward in the UK and Irish markets."

Mr Soden believes that a merger (or the threat of it) will drive off foreign predators hoping to make a meal of one of the two banks: 'My belief is we must have an independent financial services sector even if this means a unified approac,' he said earlier in the week.

Mr Soden warned that the bigger UK and overseas banks and financial services groups could soon begin looking to countries such as Ireland for potential mergers and acquisitions, having reached a size where domestic expansion opportunities are now limited. He pointed to New Zealand - which in the early 1990s ceded control of its five main banks to foreign organisations - as an example of the situation to be avoided.

'I'm not saying loss of control of the banking system is fully to blame for their slow economic growth, but it is definitely a contributing factor,' he observed. 'Imagine a situation arising that you, as a manager, do not have control (over) where the next dollar is to be invested - somebody in London or Sydney decides that for you. It's bound to have an affect on economic development.'

Front-runner to take over AIB has been the Royal Bank of Scotland, but Barclays has also been mentioned.

Recommended