AIB boss says bank will recover

ALLIED Irish Banks' US boss Frank Bramble admitted today he has yet to find evidence of other employees working alongside John Rusnak, the man accused of losing $750m (£530m) in fraudulent foreign exchange trading.

Bramble said the internal investigation at AIB's American subsidiary Allfirst was likely to take a further two weeks but he expressed optimism about the bank's future. 'We're working round the clock to find out what went wrong and to fix it,' he said.

Bramble's comments came as AIB prepared for an emergency board meeting in Dublin tonight. Chief executive Michael Buckley also intends to fly out to Allfirst's Baltimore headquarters at the earliest opportunity.

Large investors in Allied Irish Banks are calling for his resignation, however, following Wednesday's massive fraud revelations. 'The buck stops with him. This was a catastrophic failure of control,' said one institution. Another fund manager said: 'The board and its chief executive have to accept ultimate responsibility.' Institutions drew comparisons with drinks group Allied Lyons (now known as Allied Domecq). In 1991 it uncovered a £147m currency blunder, after which the chairman and chief executive resigned.

AIB shareholders were shocked by the time taken to detect the deception and were astonished too that Allfirst knew of the problem for at least two weeks before contacting its Irish parent. Buckley was not contacted until Monday evening and he and fellow board members spent Tuesday assessing the scale of the problem.

He took up the chief executive's job a year ago but has not endeared himself to many investors. In the past 24 hours he has been heavily criticised for his communication with fund managers and analysts in relation to the Rusnak fraud.

Suggestions that AIB is now a candidate for takeover were brushed aside by banking experts. Favoured predator Royal Bank of Scotland was said not to be interested. Those close to RBS said the group would probably have to sell its Northern Irish subsidiary Ulster Bank if it acquired AIB, and that was unattractive. 'AIB is not on Royal Bank's agenda, despite rumours,' said one source.

In the US Rusnak today turned himself in to the FBI. He voluntarily met the FBI and federal prosecutors in Baltimore. Following reports that he had gone into hiding, Rusnak's lawyers denied that he had ever gone on the run. Bruce Lamdin said: 'My client is not a fugitive. We hope that things will take their natural course from here. That's up to the US attorney's office.'

Rusnak, 37, had not been seen at his home in Baltimore, Maryland, since AIB revealed the suspected massive fraud. The church going father-of-two was one of two traders working at the bank's headquarters.

His lawyer said that he had remained in contact with him and denied that he had stolen the money. Another of Rusnak's lawyers said the matter would soon be sorted out. 'If they're claiming that he stole money, that won't pan out,' said David Irwin, adding: 'I'd be surprised if they ever came up with evidence that he stole money. There are no charges. There is no warrant. And this will all take care of itself in the normal course.'

However, AIB chairman Lochlann Quinn said in Dublin that there was 'considerable evidence' of external and internal collusion over the fraud. In the US, Allfirst's chairman Frank Bramble accused Rusnak of carrying out a lengthy fraud. 'At this point this is what appears to have been a very sophisticated and well thought out fraud on this individual's part,' he said. At least four members of the bank's staff are reported to have been suspended, including Matthew Kozak, the vice- president of foreign exchange and the only other trader in the department.

The losses are the worst since Nick Leeson brought down Barings Bank by running up losses of £862m on unauthorised dealing in derivatives in 1995. AIB says that the losses are not serious enough to threaten its solvency.

Parallels between Rusnak's alleged fraud and the collapse of Barings were drawn by Leeson himself today, who said the 'striking similarities' exposed 'incompetence and negligence' in the banking world

The former trader said the latest revelations showed that many financial institutions had failed to impose effective checks. He said: 'I find it very frightening that such a thing can happen again because it means the same levels of incompetence and negligence within the mid and senior levels of the bank are still there. The checks that should be in place to stop this sort of thing happening are extremely basic and people haven't been doing them.'

Leeson said Rusnak would probably have felt caught in the same spiral that trapped the Barings trader. He said: 'He's got himself into a situation where he's encountered some losses and in order to get around that he seems to have taken on bigger losses, bigger gambles, to try to make the money back. Eventually you lose control, the position that you have got starts to control you. People say why didn't you stop earlier, but the fundamental question is why didn't some of the middle and senior management of the bank stop him earlier?'

Leeson, who spent four years in jail in Singapore, said he had found himself unable to confide in his family and Rusnak would probably feel the same sense of isolation. He said: 'There is a perverse sense of release when you get caught because you have been living a lie.'

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