AIB lowers loss figure

By Andrew Bushe

DUBLIN — The investigation of the suspected fraud at the U.S. subsidiary of Allied Irish Bank is now focussing on how the bank had been making multi-million-dollar losses for five years without realizing it.

When the first announcement of the losses was made on Feb. 6, the bank said the shortfall had arisen from foreign-exchange dealings during the last 12 months.

Last week, chief executive Michael Buckley disclosed for the first time they stretched back to 1997.

The five-year run of increasing losses in thousands of transactions by John Rusnak, the trader at the center of the scandal, raises fundamental questions about the AIB’s control mechanisms.

Rusnak, whose risk limits were $2.5 million a year, has denied through his lawyer that he stole any money.

AIB has lowered its estimate of the losses to $691 million, down from $750 million.

AIB 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, Baltimore-based Allfirst.

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

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 the bank then had to cover off.

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

Eugene A. Ludwig, former Comptroller of the U.S. Currency, is investigating what happened and the losses 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.

“It is even more serious that this thing has gone back for such a long time.

“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 coverup. 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,” he said.