AIB'S US subsidiary Allfirst in its latest filing to the US Securities and Exchange Commission (SEC) said there had been "no material change in the market risk" of its active securities, derivatives trading and foreign exchange trading position portfolios during the first nine months of 2001.
The filing lodged on November 14th, 2001, which covered the nine months to end-September, sets out "Quantitative and Qualitative Disclosures about Market Risk". Under the "Fixed Income, Derivative and Foreign Exchange Risk Management" heading, Allfirst said it maintained active securities, derivatives trading and foreign exchange trading positions to service the needs of its customers as well as for its own trading account. There has been no material change in the market risk of these portfolios during the nine months of 2001, the filing stated.
The SEC filing was signed by Allfirst executive vice-president and financial officer Mr Maurice Crowley and executive vice-president and controller Mr Robert Carpenter. Under "market risk management", the filing explained market risk as the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices.
"The effective management of market risk is essential to achieving Allfirst's objectives," it said. At September 30th, 2001, the interest rate risk position of Allfirst had not changed significantly from the risk position at December 31st, 2000 and Allfirst's equity at risk and earnings at risk remained in compliance with Allfirst's policy limits, it said.
Markets remain baffled by the scale of the $750 million (€854 million) loss attributed to trading by a foreign exchange dealer.
An internal AIB inquiry led by eminent US banker Mr Eugene Ludwig has been charged with finding out what happened, whether controls were adequate and if changes are required to avoid future losses. The last SEC filing set out the lines of business reporting at Allfirst.
"Allfirst's internal accounting process is based on practices which support the management structure of Allfirst, and the resulting data is not necessarily comparable with similar information from other financial institutions," it said.
With the AIB inquiry under way, other Irish banks have been reviewing their own treasury operations in the past week.
"Anytime there is major trading or banking fraud anywhere in the world, other banks want to find out exactly what has happened to ensure they have systems and procedures in place in their own operations to avoid a similar occurrence. Bank boards and their audit committees immediately seek assurances from their own treasury operations that their houses are in order," one senior banking source commented.
