AIB Spares Senior Officials After Report Published

by Jason Gorringe, Tax-News.com, London

15 March 2002

Investors have reacted negatively to the news that no senior manager is to face the axe at Allied Irish Bank after the $691m losses at its US Allfirst subsidiary. Even Susan Keating, chief executive of the Allfirst subsidiary in Baltimore, remains in her post. Six more junior executives have been sacked including the Allfirst treasurer, Mr David Cronin.

The report by US banking expert Mr Eugene Ludwig which was published yesterday says that a combination of bullying, laziness and weak management allowed trader Mr John Rusnak to run up the losses under the noses of his superiors.

His report added: "Nothing has come to our attention during the course of our review that indicates that anyone at AIB or Allfirst, outside of the Allfirst treasury group, were involved in, or had any knowledge that, fraudulent or improper trading activity was occuring."

Although describing Mr Rusnak as "unusually clever and devious", Mr Ludwig lays the bulk of the blame at the bank's own door. The systems put in place to monitor Mr Rusnak were inadequate, not properly enforced and easily sidestepped by him. Officials in Baltimore and Dublin did not pay attention to what he was doing and most of his superiors did not understand what he actually did, according to Mr Ludwig.

AIB also confirmed yesterday that two high-ranking executives, one in the US and the other in Dublin, are to retire early. But both Mr Frank Bramble, the Allfirst chairman, and Mr Pat Ryan, the AIB group treasurer, were already planning to leave the bank before the fraud was uncovered in February.

Mr Alan Rubenstein, chairman of the National Association of Pension Funds' investment committee, said that Susan Keating should have been fired: "If she did know about the losses she should go. If she didn't know about it she should also go. In corporate governance the buck stops with the chief executive."

Michael Buckley, AIB's chief executive, and Lochlann Quinn, the bank's chairman, kept their jobs as well. Both offered their resignations to the board this week but had their positions endorsed. Mr Buckley said: "I didn't do it as a bit of grandstanding." He said he would not receive a bonus this year.

The report list numerous occasions on which the bank failed to pick up the fraud which had been ongoing since 1997. It emerged that Mr Rusnak was exposed only after a "back office" employee saw some suspicious documents on his desk last December. On two occasions, in March 2000 and May 2001, information about unusually heavy volume trading by Allfirst was given to senior group executives, but in neither case was it followed up.

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