In Panic at the Bank: How John Rusnak Lost AIB $691,000,000 Siobhán Creaton and Conor O'Clery reconstruct how one trader embroiled Ireland's biggest bank in a huge scandal. Below is an extract from the opening chapter
On the morning of Sunday, February 3rd, 2002, a number of cars drove together through the near-deserted streets of downtown Baltimore. They converged on South Charles Street, and turned into the underground car park of the 25-storey office block that was home to Allfirst Bank. The occupants got out and took the elevator to the 12th floor. There they waited, glancing impatiently at their watches. At precisely midday, one of them lifted a telephone and punched in a number. The others watched as he spoke into the reciever. When he was finished talkin ghe put it down sharply.
"He says to call back at nine."
Someone uttered an expletive.
The person at the other end of the line, however, had no intention of taking any call at nine. For John Rusnak that brief exchange was his last contact with the bank where he had worked for eight years. He had stalled them for the last time and he knew he couldn't do it again. The men gathered in the bank's trading room, colleagues with whom he worked, drank and played golf, were going through his trades. They would soon realise that he had deceived them and made fools of them almost every day, for five years.
They had been so easy to mislead for so long, but John Rusnak's luck had run out the previous week. On Thursday a manager demanded to see confirmations of 12 foreign currency trades he had supposedly made with Asian banks. A clerk had telephoned the banks and they had denied all knowledge of them. Rusnak then printed off a dozen fake confirmations and left them in the back office on Friday morning. No other bank in the world would accept confirmations from a trader, but the ploy had worked before and Rusnak hoped against hope that it would work again.
But this time the manager thought they looked bogus. He called a meeting with Rusnak and his supervisor, Bob Ray. He said that he needed immediate confirmations by telephone.
Rusnak reacted as he usually did when faced with disclosure: he threw a tantrum. He stormed out of the office and threatened to quit if they didn't stop questioning everything he did. After 10 minutes Rusnak came back and apologised. He told them he would supply the telephone number of the broker who handled the trades. He had it at home and they should call him at midday on Sunday when the markets opened in Asia. They could verify the trades through the broker, he said.
There was no broker of course, but they still wanted to believe him. No one tried to stop him gathering his personal belongings from his desk, putting them in a box and taking the elevator to ground level. He walked out of the building for the last time as Allfirst's star foreign currency trader. Rusnak knew that when he didn't return, they would start double-checking all his trades. In his desktop PC they would find a file named "Fake Docs" where he stored fraudulent trade confirmations. It would not take them long to realise that he had lost hundreds of millions of dollars on the foreign exchange currency markets when they had believed he was making money for the bank all those years.
Rusnak now had to figure out what to do. He needed time to think. He put his wife, Linda, and their two children into the family's red Chevy Tahoe, drove down the driveway from their suburban Mount Washington home into Smith Avenue, and headed out of town.
The small group of executives stayed at Allfirst Bank headquarters all that Sunday afternoon and into the evening. At nine, Larry Smith, the executive who had called Rusnak earlier, punched in his number again. The phone rang unanswered in the empty house. Smith kept trying. He didn't give up until well after midnight.
Next day, Monday, February 4th, 2002, Rusnak did not turn up for work and the crisis broke. Thoroughly alarmed, David Cronin, the head of the bank's 40-strong treasury unit, and Bob Ray, Rusnak's direct supervisor, drove out to Rusnak's house. If what they feared was true, their careers and reputations lay in ruins.
Cronin had been a fixture at the Baltimore bank since it was bought outright by Allied Irish Banks in 1989 and he had been sent by Dublin to run the treasury department and liaise with the American management. He and Bob Ray had hired Rusnak eight years earlier to make extra revenue through betting on the foreign exchange markets. Ray for his part regarded Rusnak as his protégé, someone special who had unique skills in the complicated business of making money through buying and selling options. He protected him every time a row blew up at the bank over his trades, which had been happening frequently in the last few months. Only on Friday he had warned the treasury staff, after Rusnak had stormed out of the room, that if the bank's foreign currency wizard did quit because of their tight scrutiny, some of them would lose their jobs.
Cronin and Ray turned off Interstate 83 towards Smith Avenue, the long, tree-shaded road of upper-middle-class homes where Rusnak lived. It was familiar territory to Cronin. His own home was only a mile away and he knew well where Rusnak's house was located. Cronin and Rusnak were both active parishioners at the Shrine of the Sacred Heart Catholic Church on Smith Avenue. In the little suburban parish they were both highly regarded as important executives at Allfirst.
The Irish-owned bank was the second-largest bank in Maryland, and its blue logo with white and orange squares adorned more than 250 branches and 575 automated teller machines in Maryland, Pennsylvania, Delaware, north Virginia and Washington DC. It was an important part of everyday life in Baltimore, where 2,000 of its 6,000 employees lived. Allfirst posters in bank windows told potential customers: "You focus on what's really important, we'll focus on helping you get it." The name spelled out in neon on top of its 22-storey corporate headquarters by the harbour was clearly visible for miles around. It wasn't the sort of bank where one would expect to find a solitary foreign exchange dealer moving worldwide markets with huge bets.
The two treasury bosses drove to the sloping tarmacadam avenue that led up to Rusnak's front door, past the side windows with green shutters through which antique vases could be glimpsed. A couple of wooden sledges and fold-out chrome scooters were propped up near a multi-coloured plastic playhouse. They pulled up outside the door. No one answered. There was no sign of movement inside.
The two men drove back to the bank. They had a bunch of what were almost certainly bogus confirmations of trades worth hundreds of millions of dollars. They had a missing trader. But they could not yet bring themselves to tell the chief executive of Allfirst, Susan Keating, what was going to hit her. Not until 3.30 p.m. did Cronin take the lift to the executive suite on the 22nd floor to break the news. He had, he said, an emergency situation.
It was not an easy meeting. Keating, stunned, called the Allfirst chairman, Frank Bramble. She got him on his car telephone. Since being made bank chairman in 1999, Bramble had spent a lot of time away from his office, attending civic functions or flying back and forth across the Atlantic to board meetings in Dublin. "I think we have a serious situation," Keating said.
Bramble sped back to the bank where Cronin briefed him on Rusnak's disappearance. They were still going through Rusnak's trades, the treasurer said, and as yet did not know what the bank was facing, but it was certain that they had a major financial scandal on their hands. It wasn't just the money. All their jobs were on the line.
An hour after her meeting with Cronin, Susan Keating dialled the number in Dublin of AIB chief executive Michael Buckley. It was 9.30 p.m. in Ireland. Buckley, in the top post at Ireland's biggest bank for only nine months, had been celebrating his 57th birthday that day. He had every reason to bein good spirits. AIB was performing well. In two weeks' time he was scheduled to announce record annual profits of more than €1 billion for the company. Buckley was having a cup of tea and watching television with his wife, Anne, at home in Rathmines, after hosting a dinner for senior management, when the telephone rang.
Buckley would say later that the degree of shock on taking that call from Keating was on the same scale as hearing that there was a bereavement in the family. "It was a bit like hearing my brother had died in a car accident," he said. "I never thought it could happen in our bank. I have a reasonable understanding of risk management, and my belief was that our risk management processes were very strong."
Buckley telephoned Gary Kennedy, the AIB group financial officer, who was putting his 10-year-old daughter to bed. "I've just got a phone call with some very bad news from the United States," he said.
Before the evening was out, Buckley ordered a small group of executives to meet in the bank first thing in the morning to decide what should be done and in the meantime to say absolutely nothing. He couldn't call the AIB chairman, Lochlann Quinn, just yet; Quinn was on an Aer Lingus flight to Dublin from New York, where he had delivered a lecture to business leaders at the World Economic Forum on the need for more stringent financial controls in corporations in the wake of the collapse of the Texas energy trading company, Enron.
It was still dark when Buckley and members of his crisis group drove into the grounds of AIB's modern low-rise headquarters in Dublin's Ballsbridge. Buckley called Lochlann Quinn, now back in Dublin, to tell him the news. The AIB chief executive and his group decided on several emergency measures. He instructed AIB group treasurer Pat Ryan to select a small team from the treasury and get to Dublin airport to catch the first available flight to the United States. AIB needed to know from its own people how much money was missing, whether it was the work of a single rogue trader, and whether any other bank employees were involved. The most urgent priority was to calculate the total losses so they could assess the damage and notify the Stock Exchange. In the meantime he ordered the suspension of Cronin and Ray, two other officials in direct management line above the trader, and two more staff members who were involved in supervising Rusnak.
The crisis meetings went on all day without the other staff at AIB headquarters knowing what was happening. Until late on Tuesday only a small core group of officials in AIB was aware that a financial scandal of global proportions was about to hit the bank. They included Buckley, Kennedy, Colm Doherty (head of AIB's Capital Markets division), Eugene Sheehy (who ran the bank's operations in Ireland), and Catherine Burke, head of corporate communications.
In Baltimore on Tuesday morning, the bank's lawyer contacted the city office of the Federal Bureau of Investigation. A trader had caused massive losses and they did not know where he was, the lawyer said. FBI officials Steven Graybill and Kevin Comiskey drove to Rusnak's house in Mount Washington to look for him.
Because of the five-hour time difference between Dublin and Baltimore, Ryan and his group were able to get to Baltimore and take over the investigation well before the end of Tuesday. Alongside Allfirst finance officials they worked through the night checking the trades Rusnak had made with Asian banks. It was very late in Dublin when Pat Ryan came through on the phone to give Buckley his best estimate of the extent of the losses that Rusnak had run up without anyone noticing. The good news was that it would not break the bank. The bad news was that it was calculated at $750 million. It was the biggest bank fraud since Nick Leeson brought down Barings Investment Bank in 1995 with losses of £850 million, the equivalent of $1.4 billion. Anything affecting AIB would have a significant impact on Ireland. It was the largest company on the Irish Stock Exchange, employing 31,000 people.
Buckley worked with Catherine Burke and Jim Milton, a senior partner with the Dublin PR firm, Murray Consultants, and a regular spin doctor for the bank, on a strategy for damage limitation. They decided to release the news in two stages. They would issue a statement first thing in the morning, frankly admitting the extent of the losses, but emphasising all the steps AIB had taken to investigate suspected fraud and deal with those responsible. Then Buckley would go on radio to reassure customers that it would not break the bank.
A call was put through late in the evening to the editor of RTÉ's Morning Ireland to say Buckley would be available in the morning to talk about a breaking news story. Intrigued, RTÉ's business reporter, Geraldine Harney, arrived at the RTÉ studios in Donnybrook at 5 a.m. to find out what the story was. At 7.15 a.m. a statement was faxed to the studio, announcing that AIB was investigating losses of $750 million at its American subsidiary, and that the losses had been incurred over a year because of the actions of one trader. Five minutes later, Buckley arrived at the studio with Catherine Burke. The presenter put Buckley on air immediately after the news was announced.
AIB was the victim of a determined fraud by one trader, the AIB chief executive said. It was a heavy blow to the bank. But it was not like the Nick Leeson affair which brought down Barings Bank. AIB would still make a profit after tax of €400 million, about $375 million. It would be business as usual for customers and staff.
The presenter, Cathal MacCoille, invited Geraldine Harney to comment. "Well, my first reaction is that I am gobsmacked!" she said, using a colloquialism that probably summed up the feelings of early-morning commuters listening in on car radios. "You think you have heard it all and then you get a story like this."
Panic at the Bank: How John Rusnak Lost AIB $691,000,000 is published by Gill & Macmillan