Irish Bank Fires Some U.S. Managers

A half-dozen managers at Allfirst Bank of Maryland have been fired as a result of an alleged $691.2 million fraud its Irish parent blames on a trader in the U.S. operation's foreign-exchange department.

Allied Irish Banks PLC announced the long-awaited shakeup on Thursday after two days of private discussions of a report by U.S. banking expert Eugene Ludwig into the scandal at the AIB Group's Baltimore-based unit.

In a statement, AIB said Allfirst executive vice president David Cronin, vice presidents Jan Palmer and Robert Ray, assistant vice president Lawrence Smith and internal audit leaders Michael Husich and Lou Slifker had all been fired.

Allfirst chief executive Susan Keating will remain. AIB also said Allfirst chairman Frank Bramble would retire effective June 1 but said he "had no involvement in or knowledge of the improper conduct that took place in Allfirst's treasury."

AIB said its Dublin board had refused to accept resignation offers from its chairman Lochlann Quinn and chief executive Michael Buckley, ruling that "both men acted decisively and appropriately in dealing with the Allfirst crisis."

The statement pinned primary blame on John Rusnak, the trader dismissed from Allfirst after AIB officials announced Feb. 6 that he had been deceiving them.

Rusnak's actions were "carefully planned and meticulously implemented ... and involved falsification of key bank records and documents," it said.

The bank said Ludwig had determined that Rusnak manipulated "the weak control environment in Allfirst's treasury; notably, he found ways of circumventing changes in control procedures throughout the period of his fraud."

It found no evidence that anyone else inside Allfirst had colluded with Rusnak's deception.

Lawyers for Rusnak, 37, say he is sorry but denies doing anything for personal profit. He has reportedly cooperated with FBI officers and officials from the U.S. Securities and Exchange Commission but declined to talk to Ludwig's investigators. He has not been charged with any crime.

All those fired Thursday were "directly responsible for oversight of Mr. Rusnak's activities, or should have been aware of them," the bank said, adding that "all did not appreciate the risks associated with Mr. Rusnak's hedge-fund style of foreign exchange trading."

AIB chairman Quinn blasted the performance of Cronin and Ray, who oversaw Allfirst's treasury department, which consisted of Rusnak and a second trader.

"The really annoying thing is we had controls, but the two senior people above Rusnak went to sleep," Quinn told analysts in a conference call.

In the conference call, Buckley emphasized his commitment to rebuilding Allfirst's reputation as a regional retail bank, and dismissed speculation that AIB would like to sell its U.S. offshoot.

"Since this particular event fell out of the sky onto us, the whole issue has been about damage limitation," Buckley said. "But we have not suffered any depletion of deposits. ... We're in pretty good shape to get back out there and aggressively pursue business."

AIB said it would centralize all operations related to assessing risk and finance in Dublin, shutting down all treasury operations at Allfirst and AIB's retail banks in Poland. It also pledged to appoint "an individual of international standing to review, and advise the AIB board on, risk management organization across the group."

Ludwig presented his report in private Tuesday to an unprecedented joint meeting of AIB and Allfirst executives in Dublin. It recommended that AIB concentrate any future U.S. trading activity at its own New York office, where internal controls are computerized and sophisticated.

By Shawn Pogatchnik