Directors need to decide on appropriate course of action to restore credibility in banking group

Mr Eugene Ludwig will today outline the details of how the massive five-year fraud was perpetrated at AIB's US subsidiary Allfirst to a joint meeting of the boards of the two banks. They must decide where the responsibilities lie and which heads should roll.

So far, Allfirst foreign exchange trader, Mr John Rusnak, is the only individual to have parted company with the bank as a result of the fraud. Four of his colleagues have been suspended on full-pay pending the outcome of Mr Ludwig's investigation and are likely to learn their fate by tomorrow or Thursday. There is no suggestion at this stage they were associated with the fraud.

They include: Allfirst head of treasury and executive director, Mr David Cronin; Mr Robert Ray, senior vice-president of treasury funds management; Ms Jan Palmer, senior vice-president of investment operations; and Mr Rusnak's immediate superior, Mr Larry Smith, who was responsible for verifying the trades.

Mr Cronin reported directly to Allfirst chief executive, Ms Susan Keating. Allfirst also provided daily and monthly reports which were to indicate the level of trading exposure for group treasurer, Mr Pat Ryan.

Mr Ludwig will have investigated the reliability of these reports and whether they gave an indication of a problem with regard to Mr Rusnak's activities.

Ms Keating, who became chief executive in 1999, reported to the Allfirst board, which was chaired by her predecessor and AIB group director, Mr Frank Bramble. In January 2002, Mr Buckley appointed her to his top management team known as the Group Executive Committee (GEC). That committee meets about once a month with each member reporting on their area of responsibility. Mr Keating is understood to have attended one of these meetings before the fraud was announced.

The bank insists Mr Rusnak's massive trading and its implications for AIB were not raised at a senior level within AIB.

Mr Bramble was chief executive for most of the five-year period during which the fraud was perpetrated. He was also a director of AIB Group and a member of the GEC. He attends AIB's monthly board meetings reporting on the bank's US business to the chairman, Mr Lochlann Quinn, and the bank's directors.

Ms Keating and Mr Bramble are thought to be the most senior executives likely to have to accept responsibility for Mr Rusnak's actions.

Mr Ludwig's investigation will also have had to closely examine the flow of information between AIB's Dublin headquarters and Baltimore. Apart from Mr Ryan's interaction with Allfirst's treasury operations, both Mr Buckley and AIB's head of finance and group risk, Mr Gary Kennedy, were members of the board of Allfirst. Mr Buckley joined the Allfirst board in October 1998 and would have attended regular board meetings there.

According to AIB sources, the Ludwig report has established that he contacted Mr Cronin in May 2001 to enquire about large trading activity at Allfirst based on a general comment he picked up from a source in the capital markets. Mr Cronin told Mr Buckley the size of Allfirst trades seemed larger than they were because it was using two prime banks in the currency markets. He confirmed this conversation in an email to Mr Buckley.

AIB sources said neither Mr Rusnak nor his trades were mentioned in this exchange. Mr Buckley has insisted the first time he learned of the fraud was February 4th, two days before it was announced to the stock markets.

Other key figures on the Allfirst board include former AIB group chief executive, Mr Tom Mulcahy, and former Allfirst chairman, Mr Jerry Casey. Mr Mulcahy was in charge of AIB for most of the period during which the fraud went undetected. Mr Casey was Allfirst chairman at that time and was previously chief executive of the Baltimore-based bank.

Mr Ludwig is expected to explain how the fraud was perpetrated, where the weakness in the bank's controls and systems were, and whether individuals were complicit or had failed to detect a problem because of incompetence.

Based on Mr Ludwig's account, the board of directors will have to decide whether culpability should largely rest with individuals in the US or whether senior executives in the Republic should share some of the blame.

A summary of Mr Ludwig's report was originally scheduled to be published tomorrow but AIB said last night that that might not happen until Thursday because of the volume of work facing the AIB and Allfirst boards and the need to talk to their respective regulators.

Mr Quinn and the board members will be anxious to restore credibility in the bank and display strong and decisive action based on the independent investigation of the fraud.