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AIB fears fraud dates to ’97

February 16, 2011

By Staff Reporter

By Andrew Bushe

DUBLIN — The suspected multi-million-dollar fraud at the U.S. subsidiary of Allied Irish Bank began as far back as 1997, chief executive Michael Buckley disclosed for the first time on Wednesday.

AIB has lowered its estimate of the losses as a result of the foreign exchange dealings by a rogue trader to $691 million, down from the original estimate of $750 million loss announced on Feb. 6.

Ireland’s biggest bank announced an attributable profit last year of euro 484 million. It would have been euro 997 million before the foreign exchange losses at the U.S. subsidiary, Allfirst of Baltimore.

John Rusnak, the trader at the center of the scandal, has denied through his lawyer he had stolen any money.

Buckley said the new estimate of $691 million losses was “now the definitive figure.”

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The original $750 million estimate had resulted from the uncovering of bogus trades and some real trades that hadn’t been properly put onto the books that had left them with “some continuing naked exposures to foreign exchange movements” which they then had to cover off.

“At the time that we made the announcement we hadn’t fully hedged those,” Buckley told RTE radio. “We now have. It is still a huge and horrible figure.”

Eugene A Ludwig, former Comptroller of the U.S. Currency and former vice chairman of the Bankers Trust Company, is undertaking an investigation of the losses and they are also being probed by the FBI.

“One of the material facts that has come out of the investigation so far is that the losses that this trader was covering up in this incredibly devious way actually began as far back as 1997,” Buckley said.

“About 55 percent of those losses were incurred in 2001, 30 percent of the losses were incurred during 2000 and about 15 percent go back from 1999 to 1997.

“On the one hand, you can say this was an absolute lack of controls. On the other hand, you can say, equally legitimately, this was an incredibly sophisticated and complex cover-up. I think there is a bit of both in it.”

Asked how the U.S. bank executives did not spot the losses earlier, Buckley said, “There was a very serious breakdown in controls within the Allfirst treasury, that is absolutely true, and it is also true this individual systematically identified each control point and systematically found a way around each control point.”

He said Ludwig’s report, due on March 9, would map out what happened and what management oversight issues had to be addressed by AIB’s board.

In a statement accompanying the preliminary results, Ludwig said his highest priority was to conduct a careful and thorough review of the situation.

“This includes pursuing the probability that the Bank was defrauded,” the statement said.

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