Beyond admitting that Mr John Rusnak has found a way to crack internal control systems, officials at Allfirst in Baltimore said yesterday they could not yet give precise details about how the rogue trader perpetrated a suspected fraud of $750 million €864 million) in what was a minor currency exchange operation bringing in revenues of less than $10 million a year.
"Fictitious transactions were created which gave the illusion of hedging," was all that Mr Pat Ryan, group treasurer of AIB, would say during a press conference on the 22nd floor of Allfirst headquarters in the centre of the Maryland city.
Mr Ryan, who arrived from Dublin on Tuesday, is conducting the bank's investigation into what was described by AIB as a "sophisticated fraud" which overcame the treasury foreign trading control systems in place. Five officials including Mr Rusnak have been suspended pending the outcome of the investigation.
Also unanswered at the press conference was just what had happened to the money, or even whether Mr Rusnak or a third party was in possession of any of it - or what Mr Rusnak's motives might have been.
Some people who commit fraud "do it for profit, some do it because of the concept of false pride about mistaking mistakes", said Mr Ryan. "This thing snowballed. Often it isn't for direct personal gain." AIB officials took pains to emphasise that the loss was a once-off write-off and that it occurred at a very small division of the US operation which employs 6,000 people, mostly in mainstream banking activities. No customers' accounts or deposits were affected.
"None of what has occurred will have any impact on our other activities," said Ms Susan Keating, the president and chief executive of Allfirst, who added that it was "too early to tell" who benefited from the fraud.
Only two traders were involved in foreign currency trading in the Baltimore Allfirst treasury which produces revenues of less than $10 million a year to AIB, said Ms Keating. Most of it was proprietary dealing and some for clients. The exchange division had now been shut down and would remain closed indefinitely.
Asked if Mr Rusnak's actions could be compared to those of rogue trader Nick Leeson at Barings Bank in Singapore, Mr Ryan said sharply, "In no way is it like that. He brought down a bank". This would be a write-off for AIB which remained strong. Mr Leeson was imprisoned for fraudulent trading at Barings after his bets on the markets surged out of control.
According to Mr Frank Bramble, chief executive of the Allied Irish Bank USA division and chairman of Allfirst, the first he and Ms Keating knew of the crisis was at 3.30 p.m. on Monday.
They realised they had "significant losses" by Monday evening. "Within 24 hours we had a good idea of the extent of the loss." However, Mr Rusnak had come under suspicion in the course of an annual review in January and had been questioned by the treasury management team on Friday, Mr Bramble said. A bank official had telephoned him on Sunday to ask more questions.
When Mr Rusnak failed to turn up for work on Monday without any explanation, several more hours went by before the treasury management official alerted Mr Bramble and Ms Keating.
"Members of the treasury management team of Allfirst in Baltimore came to Susan and myself and said they had an emergency situation," Mr Bramble said.
The head of treasury said he had become concerned about the level of foreign exchange trading activities by Mr Rusnak. He had asked him during January to lower the banks' exposures and had "developed some level of pushback from this individual" while watching closely foreign exchange activity. Mr Rusnak's suspect trades were mainly in dollar-yen exchanges.
"He became very concerned when on Monday this trader did not show up for work," Mr Bramble said. "As a result he began to investigate the trader's activities and it became clear that there was an alleged fraudulent activity. He discovered that the option agreements he had put in place to cover foreign exchange contracts that had been written were fraudulent. We've identified a number of these. At this point there appears to have been a sophisticated and well thought out fraud on this individual's part, very cleverly done over some period of time. We have identified an absolute number of $750 million of losses that have incurred for this activity." The trader operated within his limits though he was under pressure to reduce them.
"We are staggered by the amount of this loss," said Mr Bramble. "This did not occur in the core activities of Allfirst. This occurred in an isolated area by an individual who found a way to crack our internal control system." If properly followed this "would have detected this fraud early because in a trading operation you have traders in one structure, and the operations support whose position is to validate these transactions in another sturcure.
Those two structures work separately into the treasury. In this particular case this trader was able somehow to override the internal system." "This is not Enron," he said. "This is a case of an employee behaving in a fraudulent way and creating losses in a fraudulent way."
