AIB chiefs hold inquest on $750m fraud

Directors at Ireland’s biggest bank, AIB, were meeting in special session today to assess worldwide reaction to yesterday’s shock disclosure of a $750m (€866m) fraud loss at an American subsidiary.

The boardroom exchanges were going ahead against a background of fears that the man at the centre of the affair, John Rusnak, a foreign affairs trader at the AIB-owned Allfirst Finance Inc in Baltimore, Maryland, may not have acted alone in allegedly formulating bogus trade deals over a 12-month period that led to the massive deficit.

Executives at AIB have gone out of their way to stress that the incident poses no risk to the bank and reassure customers on that point.

But the development has left huge credibility problems over the bank’s management - although chief executive Michael Buckley has pointedly insisted that there will be no impact on his position.

The existence of evidence about Mr Rusnak’s collusion with others has been highlighted by AIB chairman Lochlann Quinn.

He said ahead of today’s board meeting: ‘‘We know a complex fraud took place and we believe there is some considerable evidence of internal collusion, and some of external collusion.

‘‘We have not had an event like this before. Our controls have been breached. It has happened and it should not have happened.

‘‘The board has got to find out why it happened and then take any action that is appropriate.’’

He said today’s meeting at the bank’s headquarters in Dublin would attempt to determine ‘‘the complexity of what is involved and why the systems did not work and whether some people didn’t do their job’’.

Mr Rusnak was earlier interviewed by the FBI at his home in Baltimore where the AIB-owned Allfirst Finance Inc is headquartered.

He ran up the huge €866m loss in a series of suspected bogus trading deals over a period of as much as a year, but bank officials only realised the scale of the operation last weekend.

His lawyer has denied any offence has taken place or that his client was at any time on the run after failing to turn up for work earlier this week.

Earlier, AIB shares, which slumped dramatically yesterday, bounced back up in today’s early trading on the Dublin and London stock exchanges.

In initial dealing the shares, which by the end of business yesterday were down 15% on starting levels, went up by around 10%.