In its first quarterly statement since the Rusnak trading scandal in February, Allfirst Financial yesterday announced that its net income for the January-March period had been reduced by some $17 million because of trading losses, and that its assets had fallen by $880 million from a year ago.
The AIB-owned Baltimore bank also disclosed in its quarterly filing with the Securities and Exchange Commission yesterday that total deposits as of March 31st were down $900 million from December 31st, 2001 levels and core deposits of $9.8 billion were down $1 billion from year's end.
The bank statement attributed the sharp decrease in deposits to the "daily volatility of commercial demand deposits" and stated that core deposits had remained relatively stable since the revelation of the fraudulent activities on February 6th, 2002. It also said that the higher figure for the end of December 2001 benefited significantly from the fact that "commercial demand deposits tend to peak at the year end date". The fall in total deposits is nevertheless almost twice that experienced by Allfirst in the first quarter of last year, when the bank reported that total deposits at March 31st, 2001, had fallen by $570 million from the quarter ending December 31st 2000, to a level of $12.1 billion.
In its SEC filing the bank conceded that core deposits had "dropped slightly" since the fraudulent trading was disclosed on February 6th. Total deposits now stand at $12.14 billion. On the other hand, the bank stated that average core deposits for the first quarter of 2002 were up 3 per cent from the first quarter of 2001.
Allfirst reported that its assets stood at $17.9 billion as of March 31st, 2002, a drop of $880 million from total assets of $18.8 billion at December 31st, 2001. This was attributed in Allfirst's SEC filing to a decrease in "cash and due" from banks of $551 million and a decrease in investment securities of $501 million, offset by an increase in federal funds sold and securities purchased under resale agreements.
The bank's net income for the quarter suffered from the trading losses in that period incurred by foreign currency dealer Mr John Rusnak, whose activities over five years cost the bank $691.2 million. While the losses have been met by the parent bank AIB, they must be recorded under US law in the Allfirst filings. Net income of $55.4 million - up $900,000 from the year-ago quarter - was revised downward to $37.8 million because of foreign exchange fraud losses, fraud related charges and goodwill amortisation. Losses from the fraud for the first quarter of 2002 amounted to $17.2 million.
Fraud-related charges included the cost of the Ludwig inquiry into the Rusnak affair which criticised Allfirst for deficiencies in its control system.
An Allfirst official said that the quarterly report reflected the stability of the figures and the soundness of the bank's operations, which no longer include proprietary foreign currency trading.
In its statement Allfirst said that adjusted total revenues grew by 8 per cent in the first quarter of 2002 compared to 2001. Net interest income showed a 6 per cent improvement over the same quarter last year bolstered by higher loan product margins and the favourable impact of the lower interest rate environment. The net interest margin increased to 3.6 per cent, up 10 basis points from the first quarter of 2001.
Regulatory capital ratios at March 31st, 2002 were stated to be: tier 1 capital ratio of 7.5 per cent; total capital ratio of 10.9 per cent and leverage capital ratio of 6.6 per cent compared to regulatory "well capitalised" standards of at least 6 per cent, 10 per cent and 5 per cent respectively.
In its filing, Allfirst stated that it is focusing on regaining access to wholesale funding sources not utilised since February 6th after its ratings were downgraded, though all ratings remain investment grade.
The bank said it curtailed its exposure to indirect retail lending/leasing and residential mortgages in late 2000. Average loans for the first quarter of 2002 (excluding curtailed businesses) were up 6 per cent from the comparable quarter in 2001. Loan balances at March 31st, 2002 excluding these portfolios were up less than 1 per cent when compared to year-end 2001 levels reflecting the impact of the weak economy. It generated "strong growth" in adjusted noninterest income showing an 11 per cent increase in the first quarter of 2002 compared to the comparable period in 2001.
