Republican News · Thursday 14 February 2002

Corporate failures - who is to blame?

BY ROBBIE MacGABHANN

It is hard to tell who was more upset that John Rusnak was not on the run last week - the media or his employers. The 37-year-old employee of Allied Irish Bank's All First subsidiary was supposed to have absconded after losses of $750 million were discovered in a market trading operation.

It was late in the week when the news of the huge losses at AIB were revealed and if you believed what you read in the papers, Rusnak was in hiding on the run and the FBI were on his case. We had a so-called "rogue trader" with AIB chief executive Michael Buckley telling the media that, "The FBI is looking for him on our behalf". Even Bertie Ahern fuelled the hype telling us that Rusnak had "mysteriously disappeared".

Shares in AIB fell 17% on the news of the huge losses, wiping £1.7 billion sterling off its stock market value.

The Guardian went a step further, telling us there was a "hunt for rogue trader". Rusnak was a church-going "Mr Middle America" and while as the scale of the losses grew so did the comparisons with Nick Leeson, the Barings 'rogue trader'.

Within a day it transpired that Rusnak was not on a plane to Rio with a suitcase packed full of dollars or leaving a trail of secret offshore accounts. Instead, Rusnak was at home and had hired a lawyer and was in discussions with the FBI. There were no arrest warrants and no search for the banker.

So what was John Rusnak supposed to have done? Well for now it seems that Rusnak had bought large quantities of yen, believing that it would rise against the dollar. At the same time he allegedly falsified the options contracts traders are supposed to take out to hedge against the possibility that their currency and share bets might not actually come off.

Now the real questions have to be asked. How did someone that AIB's chief executive described as not being a "star trader" lose so much money. "He wasn't earning massive bonuses or anything like that," said Buckley.

Interestingly, five employees have been suspended at the All First subsidiary, so it could be case of more than one rogue trader. AIB themselves have been pushing the line that there was a wider conspiracy.

Profits at the treasury division of All First have never topped $10 million. In order to run up $750 million in losses, the division would need to be trading in currency deals worth between $8 and $10 billion. This is a phenomenal amount of money yet it is only in the last couple of weeks that AIB became aware of the scale of the problem at All First.

Are we seriously expected to believe that no one in AIB knew the scale of trading that was being undertaken at All First. Rusnak was supposed to speculate with no more than $2.5 million. He was actually at 300 times his supposed limit. For now we are told that Rusnak was not using AIB clients' money but actually trying to make profit for the bank itself.

AIB has started an inquiry led by an outside consultant and a set a 30-day deadline to report back. This might help restore a little confidence in the company's share price, but it still leaves lots of questions unanswered, the central one being what is going on in how the corporate world takes care of business?

The recent spectacular crashes and scandals involving the auditors Arthur Andersen and one of their customers, the US company Enron, whose losses of $618 million are actually less than those run up by AIB, as well as the revenue and subsequent share price collapse at Elan, all show serious failures in how those at the top do business.

Bertie Ahern spoke in Leinster House last week to assure AIB customers that the bank was still solvent. He should have taken action and asked why such a failure was allowed to happen and shouldn't such huge companies be more accountable. The collapse or even takeover of both Elan or AIB could have huge ramifications for the Irish economy and the stock market where these two companies account for a huge share of the total exchange value.

Isn't it interesting that Enron's $618 million collapse has prompted six different Congressional enquiries, yet AIB's $750 million loss only provokes the state's leader to tell us that everything is OK. Surely there should be government regulations governing currency and other international market trades that prevent a company threatening its solvency by such a dangerous trading activity.

The events of last week have given the general public a quick snapshot of perhaps the true world of high finance and international business, a world where rules do not apply when the pursuit of short term profit is involved.

It is not a pretty sight. Considering how many thousands of jobs depend on these companies and in some case how much of taxpayers' money is invested in the form of grants and tax breaks, we need answers, not just assurances.

For now let's give AIB their 30 days.