Speculation is growing in the US that Allied Irish Banks will sell its Baltimore-based bank as soon as it has cleaned up the mess left by trader John Rusnak, according to banking analysts in the region.
"It is absolutely my opinion that AIB will sell Allfirst," said Mr Lew Sosnowik, an analyst with Koonce Securities in Bethesda, Maryland. "They never expanded the venture to become a real powerhouse in the United States, and now that it has turned out to be a disaster, my guess is that they will try to 'gussy' it up a bit and get rid of it."
The option may appear increasingly attractive to AIB as the clock ticks towards March 9th, when independent investigator Mr Eugene Ludwig is to deliver his report on how Mr Rusnak lost $691 million (€793 million) in phoney trades.
Troubles are piling up for the Maryland bank in the form of possible legal action over mismanagement, and a major reshuffle of top personnel in Baltimore is almost certain when the report comes out.
Baltimore lawyer Mr Charles Piven said yesterday that possible claims may exist against the board of directors of Allfirst "for violations of the board's responsibility to act prudently in managing the bank's business". His office issued a nationwide invitation to stockholders on Friday to enforce claims against board members, which can be taken even if no financial loss has occurred.
There are other reasons why AIB may wish to divest itself of its Baltimore bank. Since Ms Susan Keating took over as president and CEO in 1999 income has been consistently rising, but deposits declined by 5.6 per cent while increasing at rival banks, according to a report in the American Banker. Also Allfirst had failed to expand aggressively in the face of competition in Atlantic seaboard states from rival banks such as South Carolina-based BB&T, analysts say.
"Allfirst really has not been a player to speak off as far as acquisitions go in the mid-Atlantic relevant to others out there," said Mr Adam Barkstrom, a banking analyst for the Baltimore-based firm of Legg Mason.
"Although AIB has previously discussed expanding its operations in the US, we wouldn't be at all surprised to see these assets go up for sale once the brouhaha dies down," according to Kathy Shanley, an analyst at Gimme Credit of New York.
Pressure on the management of Allfirst to step down was intensified yesterday by a report that more than two years ago there was concern at Allfirst over Mr Rusnak betting too much of the bank's money but that executives failed to take action.
A copy of an Allfirst memo dated mid-1999, obtained by the Wall Street Journal Europe, showed that a computerised system to measure trading risk had been installed in Mr Rusnak's computer "to hopefully avoid future over-limit situations".
This referred to the fact that Mr Rusnak had been regularly exceeding by $1 million his maximum potential permitted losses per day of some $2.5 million.
THE US banker investigating multi-million-dollar losses at Allfirst has not been given the job to "name names", according to AIB chairman, Mr Lochlann Quinn. Mr Eugene Ludwig's remit will be to make recommendations in terms of controls and procedures.
The task of allocating blame will be for the board, which will prepare a summary of Mr Ludwig's report for the outside world, Mr Quinn says in an interview in today's Financial Times.
Mr Quinn also admits to feeling a little aggrieved other traders did not alert AIB to the difficulties amassing at Allfirst and is still astonished at the scale of the losses incurred. "In three hours it was $300 million. In less than 24 hours it grew from $300 million to $700 million."
Currency trader John Rusnak is accused of racking up trading losses, which he hid by writing what Mr Quinn calls "falsified" options. "There were only 14 fraudulent trades. But one of those in-the-money options required us to pay out $179 million," he said.
