A year ago US subsidiary Allfirst said it lost millions of dollars, writesConor O'Clery in New York
A year has passed since AIB made a pre-dawn announcement in Dublin that its Maryland subsidiary Allfirst had lost hundreds of millions of dollars and a trader was missing. On that day, February 6th, I got a 5.00 a.m. telephone call to go to Baltimore to cover the breaking story.
At midday Allfirst chairman Mr Frank Bramble and CEO Ms Susan Keating hosted a chaotic press conference at Allfirst headquarters, looking stricken. There had been a terrible break-down in controls they said.
Mr Eugene Ludwig's report five weeks later recounted no less than 89 reasons why John Rusnak had evaded detection for five years, while executives in Baltimore and Dublin missed enough red flags to decorate the Kremlin.
Later when doing research in Baltimore for a book on the affair, I found a generation of Baltimore bankers waiting to tell their story of how Allfirst had gone wrong. These were the Americans who had been running the bank - then called First National Bank of Maryland - for years before AIB took full control in 1989. Despite achieving a 20 per cent compound growth rate for 10 straight years, CEO Mr Charlie Cole was forced out in 1994 due to policy, cultural and personality differences.
Mr Bramble was brought in from a failed "Catholic" bank in Baltimore, as was Ms Keating later. For much of the late 1990s the bank was in turmoil as the experienced old guard was replaced by the new. Morale plummeted.
It was a brutal process. Many of the old-money Baltimore bankers feel the hurt to this day. Mr Bramble switched the bank from federal to Maryland state control in 1998, which placed an intolerable burden on the Maryland Commission of Financial Regulation, whose job it is to see banks are run properly.
It didn't have the expertise or the personnel to monitor the bank's treasury properly. One result of the debacle is that Maryland General Assembly is now considering more funding to equip inspectors to detect signs of fraud.
Federal regulators called in after Rusnak are still monitoring Allfirst. However, foreign currency proprietary trading is no longer carried out at Allfirst or any other Maryland bank.
Mr Bramble, Ms Keating and several other executives at Allfirst departed after the scandal. Mr Bramble joined the credit card company MBNA and Ms Keating moved to Florida. In September AIB announced a $3.1 billion deal to merge the bank with M&T Bank of Buffalo, New York.
Rusnak, who starts serving a seven-and-a-half year prison sentence on February 18th, cannot be blamed for the demise of a fine 200-year-old bank. AIB had already decided to get rid of Allfirst before the scandal, most likely because it had lost confidence in the management team it had installed.
M&T chairman Mr Robert Wilmers told the Baltimore Sun he had been working on the acquisition of Allfirst with its $18 billion asset base since October 2001. Negotiations slowed in February, but the Rusnak scandal was "an isolated incident". Under the deal, which will close this quarter, M&T will exchange 26.7 million shares of stock and $886 million in cash for Allfirst, leaving AIB with a 22.5 per cent stake in M&T.
Mr Michael Buckley, AIB's group chief executive, will take a board seat, as will Mr Eugene Sheehy, CEO of Allfirst, who will become CEO of M&T's Maryland and Pennsylvania divisions. The blood-letting at the bank continues. Last month M&T said it would eliminate 1,132 jobs, or 20 per cent of Allfirst's work force, over the next year. In Baltimore 657 jobs will be lost.
At AIB's Ballsbridge headquarters, the anniversary of the Rusnak revelations went unmarked yesterday. The bank is currently in a closed period, leaving it unable to comment on operational or financial issues.
All a spokesman would say on the aftermath of the affair was that AIB was "happy that business was able to continue as normal during and after the fraud".
The bank's closed period will expire when the results are issued on February 19th.
