AIB Loses $750m In US Trading Fraud

by Jason Gorringe, Tax-News.com, London

07 February 2002

After news broke that a rogue trader at an Allied Irish Bank US subsidiary had lost $750m in derivatives trades, Bertie Ahern, the Irish premier, yesterday reassured the Irish public's that the republic's largest bank and its depositors were safe.

He told the Irish parliament: "AIB will still be profitable and I think that is what their customers want to know. AIB's capital base remains strong. There is no danger to AIB account holders of any loss of funds or indeed to the solvency of the bank."

Comparisons between trader John Rusnak and Nick Leeson, the futures trader whose unauthorised trading activities brought down Barings in 1994, were inevitable yesterday. But while Mr Leeson's activities led to the collapse of Barings, Britain's oldest merchant bank, Allied Irish Banks's finance director Gary Kennedy was adamant that the Irish bank would survive and flourish.

Mr Kennedy said: "Everybody is making that comparison but, while this is a blow, it is not fatal." Mr Kennedy stressed yesterday that no large sums had been transferred from AIB's Dublin headquarters to the Baltimore subsidiary where the losses occurred. "It is a key difference," he said.

AIB is a public company, listed on the London and Dublin stock exchanges and, despite the fall in its share price yesterday, its market capitalisation is still about 10 billion euros (£6.25 billion). The bank, the largest in Ireland, has assets of 80 billion euros.

Before this fraud, AIB was expected to report profits of 1.4 billion euros last year. Yesterday the bank said this figure would be reduced by 586 million euros.

Mr Kennedy said: "Our fundamental strategy has not been damaged. About 97 per cent of our profits are generated by customer relationships. Foreign exchange trading contributed only three per cent."

Allied Irish Chief Executive Michael Buckley said: "We are hugely disappointed that our Allfirst control procedures failed to uncover this situation at an earlier stage. "The investigation now under way will determine not only how it arose but also how we can guard against any recurrence."

At a press conference at the bank's headquarters in Dublin, Mr Buckley insisted that customers would not be affected. Every effort was being made to reassure shareholders, he added. He said there were indications that there may have been some collusion with the individual involved "by either somebody else within the organisation, or with some external parties. "The investigation into how this happened is still going on. We have concentrated so far on discovering how much money is involved."

He admitted that it was alarming that the suspect trader's superiors had not known what he had been doing. "The nature of this fraud was very complex. We have a very adequate series of checks and balances, in the same way that a house has a very good alarm system. "But someone who is determined and in a position to overcome that system can do it."

Trader John Rusnak was said to have met the FBI by his US lawyer Bruce Lamdin, who said: "My client is not a fugitive. We hope that things will take their natural course from here. That's up to the US attorney's office." Mr Lamdin said no charges had been brought against 37-year-old Mr Rusnak, of Baltimore.

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