Bank hunts trader in fraud probe

LONDON, England (CNN) -- Allied Irish Banks is trying to trace an American based trader after revealing a suspected $750 million fraud.

The Republic of Ireland's biggest bank, which admits its internal controls failed, has suspended nearly all foreign exchange trading and called in the Federal Bureau of Investigation.

The trader was identified to CNN as John Rusnak, an American in his 40s who had worked at the bank for seven years.

"Allied Irish Banks plc. is undertaking a full investigation into foreign exchange trading operations at the Baltimore headquarters of its U.S. subsidiary Allfirst," a news release from AIB said on Wednesday.

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"This decision follows the uncovering by Allfirst management of suspected fraudulent activities by one trader who has since failed to report for work."

AIB said it had reported the matter to the FBI, and had asked for the agency's help.

It has also suspended five executives at its treasury operations pending the completion of the investigation.

The trader involved has worked for Allfirst for seven years, said AIB Chief Executive Michael Buckley.

The married father has been a "respected member of his local community," Buckley added.

"He has never given anybody any reason to believe from his performance and his job until now that he was an unusual individual in any way."

Indications of suspected fraudulent activity in the foreign exchange trading area at Allfirst were discovered during a management review within the treasury division of the subsidiary, Buckley said.

Allfirst launched a lengthy investigation with "intense attention" on Rusnak, he added.

When the probe reached a "crunch point" over the weekend, the trader disappeared, at which point AIB notified the FBI.

Buckley said the losses arose on a series of unauthorised transactions in a number of foreign currency contracts.

He termed the alleged fraud as "complex," where the trader required varying amounts of cash for different reasons at different times of the year.

Alarm bells

"Ultimately, it was the increase in the amount of cash that he was requiring that set off the alarm bells," Buckley said.

Despite the sizable loss, which will appear as a loss in the Dublin-based bank's 2001 earnings, Buckley said the group will show profits for the year totalling $347 million after taxes, or about $563.5 million before taxes.

Before this charge, pretax earnings would have totalled €1.4 billion.

The company's stock plunged more than 20 percent to €10.50 in early Dublin trading on Wednesday.

Buckley: "One-off blow"

Buckley sought to allay fears that the bank would succumb to the same fate as British merchant bank Barings, which was brought to its knees after rogue trader Nick Leeson racked up $1.3 billion losses on Singapore's futures market

"We're a strongly capitalised bank, after this loss, by international standards," Buckley said.

"Our capital base is not a constraint on our development and particularly the achievement of our budgets for 2002."

He said the fraud would not affect bank customers "in any way." AIB will now launch an investigation to find out exactly how much money was involved and determine an appropriate course of action.

"We are hugely disappointed that our Allfirst control procedures failed to uncover this situation at an earlier stage," Buckley said.

"The investigation now under way will determine not only how it arose but also how we can guard against any recurrence."