|
Allied probes $750M fraud
|
 |
February 6, 2002: 3:48 p.m. ET
Irish bank suspects currency trader lost money in unauthorized U.S. trades.
|
NEW YORK (CNNfn) - Ireland's biggest company, Allied Irish Banks PLC, said Wednesday it may have lost $750 million in suspected fraud at its U.S. subsidiary, a revelation that worsened existing jitters about the reliability of corporate accounting.
AIB quickly sought to allay fears that it would succumb to the same fate as British merchant bank Barings, which was ruined after rogue trader Nick Leeson racked up more than $1.3 billion in losses on Singapore's futures market.
"The group's underlying business and profitability momentum is not impaired by this once-off blow," CEO Michael Buckley said.
Nevertheless, AIB (AIB: Research, Estimates) shares plunged on the New York, London and Dublin stock exchanges. Shares of other British and Irish banks fell in sympathy.
AIB said it had enlisted the aid of the U.S. Federal Bureau of Investigation to find the trader it suspects of defrauding it, a man identified to CNN/Money as John M. Rusnak of Baltimore, Md.
Attempts to reach Rusnak, who has been missing since the weekend, were unsuccessful, but his attorney told Reuters he was in Baltimore and did not steal from AIB.
Though describing him as an employee of good standing before these allegations, AIB declined to give any more information about Rusnak, who worked in the foreign exchange trading operations of AIB's U.S. affiliate, Allfirst, which has its headquarters in Baltimore.
AIB said an initial investigation found Rusnak entered "unauthorized transactions" in a number of foreign currency contracts at Allfirst to offset losses he was making in real trades. The alleged fraud was discovered this weekend, an official said, and may have continued for more than a year. The official said AIB is confident the alleged fraud amounted to about $750 million.
AIB, the biggest company on Irish stock exchanges, has suspended nearly all foreign exchange trading. It also has suspended five executives at its treasury operations pending the completion of the investigation.
AIB would not release the names of the suspended executives, but they include Allfirst's executive vice-president/treasurer, its senior vice-president with responsibility for treasury funds management and the senior vice-president with responsibility for investment operations.
Click here to check other financial stocks
The possible fraud, which apparently was overlooked by Allfirst control procedures, couldn't have come at a worse time for investors, with recent accounting difficulties at Enron Corp., Tyco International Ltd. (TYC: Research, Estimates), Irish drugmaker Elan Corp. (ELN: Research, Estimates) and more.
John Tyce, a banking analyst at SG Securities, told Reuters the news would force banks to reevaluate their controls. "But if somebody really determinedly sets out to defraud you, then you've got problems."
Allfirst thinks the alleged fraud was limited to a very small area, a spokesman told CNN/Money, possibly making it more difficult to detect.
"We are hugely disappointed that our Allfirst control procedures failed to uncover this situation at an earlier stage," Buckley said in an earlier statement. "The investigation now underway will determine not only how it arose, but also how we can guard against any recurrence."
AIB said it plans to take a one-time charge of $518.5 million ( 596 million), after tax to cover the losses. Before this charge, pretax earnings would have totaled $1.2 billion (1.4 billion).
Reuters reported that credit rating agency Fitch said the scale of the suspected fraud cast doubt on Allfirst's management and supervision and that Standard & Poor's said it was considering a downgrade. 
|
|
|
|
|
|
|
