AIB probe: More answers needed

March 14, 2002 Posted: 10:36 AM EST

DUBLIN, Republic of Ireland (CNN) - Like many investigations into possible wrongdoing in the corporate world, the findings of a month-long probe into the $691 million fraud at Allied Irish Banks' U.S. subsidiary raises more questions than answers.

In the case of Allfirst Financial -- where the alleged rogue trader John Rusnak is said to have hid currency trades and falsified documents -- the questions are: Why did the buck stop short of the AIB's executive offices in Dublin? And did the rot spread beyond the walls of the AllFirst trading room?

The response in the banking community to those questions has been fairly muted. Most analysts appear satisfied that all the problems have been identified and that proper action is being taken to avoid similar questionable activities happening again.

"I think people are generally happy with it [the investigation]," Scott Rankin, banking analyst at Davy Stockbrokers in Dublin, told CNN. "It seems to certainly fulfil its purpose."

The main conclusion of the probe -- that Rusnak acted as a "lone wolf" in perpetrating the alleged fraud -- has been accepted by the AIB board, which moved swiftly to assure customers and shareholders that their money is safe.

But the bank's top brass -- Chief Executive Michael Buckley and Chairman Lochlann Quinn -- still get to keep their jobs, as does Susan Keating, the chief executive of AllFirst. A fourth person, AllFirst Chairman Frank Bramble, will retire on June 1, according to an agreement reached in January before the alleged fraud was uncovered.

But while AIB's top management avoided the axe, six of Keating and Bramble's fellow executives at the Boston, U.S.-based subsidiary were fired.

They were: David Cronin, Executive Vice President and Treasurer of AllFirst, Robert Ray, Senior Vice President, Treasury Funds Management AllFirst, Lawrence Smith, Assistant Vice President, Operations and Financial Analysis, AllFirst Treasury, Michael Husich, Head of Internal Audit, AllFirst, and Lou Slifker, Team Leader, Internal Audit, AllFirst.

Rusnak's trading activities did not receive "the careful scrutiny that they deserved" and his supervisors "didn't appreciate the risks associated with Rusnak's hedge-fund style of foreign exchange trading," the independent report produced by Eugene Ludwig states.

"Even in the absence of any sign of fraudulent conduct, the mere scope of Rusnak's trading activities and the size of the positions he was taking, warranted a much closer risk-management review."

But it was Cronin, who was in charge of the treasury group and ultimately responsible for Rusnak's actions, that has come under the most criticism.

"Allfirst and AIB senior management heavily relied upon the Allfirst treasurer, given the treasurer's extensive experience with treasury functions and foreign exchange trading in particular," the report states. "In hindsight, this heavy reliance proved misplaced."

Even Ludwig admits these problems are not easy to resolve, given the nature of the business. "Trading activities are inherently high-risk activities," he told CNN.

Another cloud hanging over AIB is the question of whether, even if Rusnak acted alone inside the company, was anyone else involved outside of Allfirst?

"We did not have time to really go into third party situations,"Ludwig said. "There are certainly reasons that those relationship ought to be explored in terms of their interplay in the fraud and I'm sure the company will be following up vigorously."

The market is also anxious for that issue to be resolved, to safeguard shareholders and to restore confidence in the bank.

"There are lots of other questions that could be answered," said Rankin of Davy Stockbrokers. "He [Ludwig] has addressed the issue of whether there was internal collusion. But he hasn't addressed the issue of external collusion."

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