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. Last Updated: 07/27/2016

Heads Roll at AIB Over Fraud

DUBLIN, Ireland -- A half-dozen managers at Allfirst Bank of Maryland have been fired as a result of the $691.2 million fraud committed by a foreign exchange trader, the bank's Irish parent announced Thursday.

The shakeup by Allied Irish Banks PLC followed two days of private discussions of a report by U.S. banking expert Eugene Ludwig into the scandal at the AIB Group's Baltimore-based unit.

In a statement, AIB said Allfirst executive vice president David Cronin, vice presidents Jan Palmer and Robert Ray, assistant vice president Lawrence Smith, head of internal audits Michael Husich and Lou Slifker, team leader of internal audit, had all been fired.

But the most senior Allfirst figure under pressure, chief executive Susan Keating, will remain. AIB added that Allfirst chairman Frank Bramble would retire effective June 1, but said he "had no involvement in or knowledge of the improper conduct that took place in Allfirst's treasury."

The statement pinned primary blame on John Rusnak, the trader dismissed from Allfirst after AIB officials said Feb. 6 he had been deceiving them.

Rusnak's fraud was "carefully planned and meticulously implemented ... and involved falsification of key bank records and documents," it said.

The bank said Ludwig had determined that Rusnak was guilty of "manipulating the weak control environment in Allfirst's treasury; notably, he found ways of circumventing changes in control procedures throughout the period of his fraud."

All those fired Thursday were "directly responsible for oversight of Mr. Rusnak's activities, or should have been aware of them," the bank said, adding that "all did not appreciate the risks associated with Mr. Rusnak's hedge-fund style of foreign exchange trading."

Lochlann Quinn, the AIB chairman, blasted the performance of Cronin and Ray, who oversaw Allfirst's treasury department, which consisted of Rusnak and a second trader.

"The really annoying thing is we had controls, but the two senior people above Rusnak went to sleep," Quinn told analysts in a conference call.

AIB said its Dublin board had refused to accept resignation offers from Quinn and the bank's group chief executive, Michael Buckley, ruling that "both men acted decisively and appropriately in dealing with the Allfirst crisis."

In the conference call, Buckley emphasized his commitment to rebuilding Allfirst's reputation as a regional retail bank and dismissed speculation that AIB would like to sell its U.S. offshoot.

"Since this particular event fell out of the sky onto us, the whole issue has been about damage limitation," Buckley said. "But we have not suffered any depletion of deposits. ... We're in pretty good shape to get back out there and aggressively pursue business."

AIB said it would centralize all operations related to assessing risk and finance in Dublin, shutting down all treasury operations at Allfirst and AIB's retail banks in Poland. It also pledged to appoint "an individual of international standing to review and advise the AIB board on risk-management organization across the group."

In the conference call, Ludwig called Rusnak "a lone-wolf trader" who could not have hidden in AIB's larger New York trading floor.

Lawyers for Rusnak, 37, say he is sorry but denies doing anything for personal profit. He has reportedly cooperated with FBI officers and officials from the U.S. Securities and Exchange Commission, but declined to talk to Ludwig's investigators. He has not been charged with any crime.

Ludwig presented his report in private Tuesday to an unprecedented joint meeting of AIB and Allfirst executives in Dublin. It recommended that AIB concentrate any future U.S. trading activity at its own New York office, where internal controls are computerized.