Allfirst Financial Inc. and its Irish parent said yesterday that they have entered into a written agreement with regulators that requires them to further strengthen management and internal controls in the aftermath of a currency trading scandal that cost the companies $691.2 million.
Allfirst and its parent, Allied Irish Banks PLC of Dublin, Ireland, avoided any real punitive measures such as fines and put this stage of the crisis to rest.
Industry experts were not surprised by the outcome.
"I think the regulators responded appropriately," said George Freibert, chairman of Professional Bank Services Inc., a bank consulting and investigative firm in Louisville, Ky. "The bank did respond to it very quickly, recognized the loss ... and they solved the problem. That is what regulators want banks to do when they have these kinds of challenges."
Bert Ely, a banking consultant in Alexandria, Va., said the measures were appropriate.
"Here you have a situation where the bank, with guidance of very good legal counsel, basically didn't try to hide the magnitude of the problem or cover it up in anyway," he said. "All things considered, AIB and Allfirst got off pretty well here."
The agreement, signed Wednesday, was made between Allfirst, Allied Irish and the Federal Reserve Bank of Richmond, Va., Maryland's banking commissioner and the Central Bank of Ireland. It marks the first time the Federal Reserve has entered into a joint enforcement action with a foreign regulator.
Susan C. Keating, president and chief executive of Allfirst, which is based in Baltimore, said the agreement was appropriate and "recognizes the fact that we have stayed in close touch with our regulators through the process of the investigation."
"We have been very aggressive in moving forward and taking action and really responding to what we have learned through the course of the investigation," she said. "As we learned things, we went in and made changes. That is what the Federal Reserve clearly recognized."
Michael Buckley, Allied Irish's chief executive, said in a statement that the companies have "worked assiduously with our regulators in putting together a very comprehensive action program and will continue to stay in close touch with them as we implement it over the coming months."
Under the agreement Allfirst must: Submit to regulators a written statement by May 25 describing immediate actions that it is taking to address findings about issues including management oversight, internal controls and auditing. Retain consultants to perform a comprehensive review that will address Allfirst's management structure, the duties and performance of each senior officer, risk management, internal controls and methods for internal audits. The consultants will have "complete access to all employees, books, records and documents ... necessary to conduct their reviews." Submit a written management plan to regulators two months after the last consultants' report that outlines actions taken to strengthen its management and to "improve the boards of directors' oversight of its officers and operations within the U.S. Group.""What this [agreement] did was put ... flesh to the bone and put certain time frames in there," said Daniel Weitzel, a lawyer specializing in banking at Duane Morris LLP in Washington. "We don't get to take our good old time and lollygag through it."The agreement comes nearly 3 1/2 months after Allfirst said Feb. 6 that employee John M. Rusnak had hidden millions of dollars lost in currency trades.The company hired Eugene A. Ludwig, a former comptroller of the currency, who led an internal investigation that criticized the bank, concluding that Allfirst's oversight and controls were lax and that Rusnak's trading wasn't carefully scrutinized. Six employees were fired, and Allied Irish named one of its executives, Eugene C. Sheehy, chairman of Allfirst. Sheehy replaced Frank P. Bramble, who retired April 30.Allfirst has worked quickly to make changes in the aftermath of the debacle, Keating said.It has discontinued all proprietary trading activities in foreign exchange and its fixed income area. It has reviewed all of the businesses within Allfirst and has completed some "fairly extensive assessments" of how it measures risk. It also has tightened controls.Last month, Allfirst appointed a treasurer and a head of its treasury operations, and both will report directly to Allied Irish's treasury group. It also named an interim head of internal auditing.Also last month, Allied Irish named John G. Heimann as "special adviser" to its board on risk management. Heimann, who was chairman of Merrill Lynch Global Financial Institutions and comptroller of the currency, will address risk-related issues identified in the company's internal investigation.Allied Irish and Allfirst have also retained First Manhattan Consulting Group to advise the companies on centralizing treasury operations and Deloitte & Touche LLP, an accounting and consulting firm, to review credit risk and operational risk management, Keating said."We are well along in actually completing a number of the actions," she said. "We see this as a process that will just be a part of what we do over the next months. It is going to be something that we take very seriously and are very aggressive about." Copyright © 2015, The Baltimore Sun