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Magnitude of fraud has bank at a loss

February 16, 2011

By Staff Reporter

By Susan Falvella-Garraty

BALTIMORE — Ireland’s biggest bank now must deal with one of the biggest cases of fraud by an alleged rogue foreign exchange trader, John Rusnak.

The details are reminiscent of the 1994 case of Nick Leeson, who brought down Britain’s Barings Bank with billions of concealed losses. How did this story unfold?

So far, the two sides in the AIB matter are offering differing tales.

According to the top management of Allfirst, Allied Irish Bank’s subsidiary in Baltimore, a supervisor of one of the bank’s most loyal and trusted employees supposedly calculated on Friday, Feb. 1, that over $750 million was lost because of one man’s bad trades in the foreign exchange market.

“We were staggered,” said Frank Bramble, an American who sits on the board of AIB in Dublin and is the head of the Allfirst Bank, the subsidiary, which has large holdings up and down the East Coast of the U.S.

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Company officials called Rusnak at his home on the following Sunday to discuss the matter. On Monday, the father of two did not come to work. By Monday night, John Rusnak was a wanted man by the Federal Bureau of Investigation.

However, FBI officials said on Tuesday, Feb. 5, that they do not have Rusnak in custody. Officials have not ruled out possible “collusion” by others inside the bank either in the United States or in Dublin. So far, four other Allfirst/AIB personnel have been suspended because of the losses.

One of those suspended, the former head of treasury, Dave Cronin, was known to be friendly with Rusnak. Cronin was rushed to hospital on Feb. 5, apparently suffering from stress.

According to a grocer in the men’s neighborhood of Mt. Washington in Baltimore, Cronin and Rusnak “knew each other real well, and I think their kids even went to the same school.”

Rusnak rang up most of the enormous losses betting on the U.S. dollar value against the Japanese yen, said bank officials at a news conference last week in Baltimore.

Pat Ryan, the group treasurer of AIB, flew to Baltimore on Monday from Dublin to oversee the investigation.

Surrounded by tough-talking American banking executives at the bank’s conference room in downtown Baltimore, Ryan struck a soft and careful tone in his assessment of the damage so far.

“Some people do it for selfish direct gain,” Ryan said of traders covering losses in the banking business, “but others do it out of a sense of false pride about making mistakes, not acknowledging small mistakes, where they try to cover up and then the thing snowballs.”

Just how one person could generate $750 million in losses in a two-person operation that would normally generate perhaps a $10 million a year profit has investigators at a loss.

“This trader is not taking down this bank,” Bramble said as he outlined the ability of the bank to absorb the loss and its plans to write it off without changing the forecast of stockholder dividends. He emphatically denied that the loss would negatively impact an account holder in Baltimore or Dublin.

“This was a very sophisticated and well thought out fraud conducted over a long period of time,” Bramble said. It consisted of less than 200 trades and was not caught by the bank’s auditor, PWC, he said.

Bramble said AIB could cope with the loss. “This is no Enron,” he said.

The American bank, Allfirst, where Rusnak worked for 11 years, accounts for 25 to 30 percent of Allied Irish Bank’s total business holdings. He was considered a model employee.

The scandal dims AIB’s hopes of gaining a wider foothold in the American banking industry. With the Irish pharmaceutical company Elan embroiled in questionable accounting practices, and the collapse of Enron, one of the world’s top corporations, concerns over how markets and the public at large will react to yet another lapse in business accountability is sure to weaken an already unstable economic atmosphere.

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