Allfirst Bank's coffers are short $750 million amid allegations of a massive fraud, but company officials and experts said consumers who have accounts at the bank have no reason to panic.
"None of our customers nor any of our customers' accounts or any of our depositors' money was in any way impacted by what happened here," said Allfirst President and Chief Executive Susan C. Keating. "We are a safe organization."
Allfirst said yesterday that one of its currency-exchange traders lost $750 million on bad bets in the foreign currency market and then used fake transactions to cover up the shortfall.
"It sounds like it was a hit to their equity, but it certainly doesn't put them in a troubled situation," said Carla Stone Witzel, a financial-institutions lawyer at Gordon, Feinblatt, Rothman, Hoffberger & Hollander LLC in Baltimore. "It sounds like Joe Blow on the street should sleep well tonight."
Allfirst Financial Inc., Allfirst's U.S. parent, had assets on Sept. 30 of $17.7 billion. Allfirst is owned by Allied Irish Banks, the largest bank in Ireland, which had $74.5 billion in assets as of mid-2001.
"This is a serious issue for the bank, but customer deposits and the bank itself, we believe, remain secure and sound," said Mary Louise Preis, Maryland's commissioner of financial regulation. "There is just no reason for consumers to be alarmed."
But with headlines filled with news of the Enron Corp. debacle, in which employees and investors lost millions as executives allegedly hid debt, some Allfirst account holders were apprehensive about officials' reassurances.
Jemel Hatcher, a wireless technology consultant who was at the bank's headquarters at 25 S. Charles St. to transfer money from savings to checking, said he chose Allfirst because he felt his money would be safer there than at a smaller institution.
"My confidence is definitely shaken. That's a big shock. How does $750 million disappear?" he said. "I'm sure Enron told their employees [not to worry] when their stock started dropping. "
Maureen Moran, who was making a withdrawal from the ATM at that office, wasn't mollified either.
"This Enron situation makes people much more wary of statements from CEOs," she said. "You're talking about $750 million here."
Preis said her agency, along with the Federal Reserve Bank of Richmond, Va., will be monitoring Allfirst's investigation and its policies and procedures for managing risk. But she said the comparison to Enron is off the mark.
"In the Enron situation you had a lot of insider knowledge that might have been kept from employees," she said. "In this situation the bank's internal procedures found this and they have moved very aggressively to isolate and contain it. It was an employee who was allegedly harming the bank's position."
Although she and others expressed confidence that Allfirst's banking operations are not in peril, customers are protected in any case.
The Federal Deposit Insurance Corp. insures bank deposits up to $100,000. Accounts such as mutual funds and insurance annuities are not covered, but regular deposits such as certificates of deposit, checking and savings accounts are protected.
Last year, four banks out of the 9,700 that the FDIC insures closed. When a federally insured bank fails, ownership is transferred to the FDIC, which then tries to find a buyer rather than keep the bank closed and cut checks to cover customers' accounts.
"A bank that is closed on a Friday typically will reopen Monday as a branch of a new bank," said FDIC spokesman David Barr. "Depositors see little to no interruption - it's business as usual for them."
Even in those cases, Barr said, only the insured amount can be transferred to the new banking entity. It is possible for someone to insure more than $100,000 at a bank, but the accounts must be set up in a precise manner to qualify.
Paul Monaghan, a software engineer who was at an Allfirst branch on St. Paul Place in Baltimore, tried to put it all in perspective.
"I think it's a big enough conglomerate that [$750 million] is not going to bother anyone," he said. "I don't have much in there."
Sun staff writers Scott Calvert and Bill Atkinson contributed to this article.