Allfirst Bank is finding out the hard way that it isn't the 1990s anymore.
Currency trading might have been a fairly obscure line of banking back then, but it was a place for young men who were brimming with confidence, were quick on the keyboard, and willing and able to risk large amounts of money on infinitesimal swings in international exchange rates.
They were swashbucklers of finance who weren't afraid to bet the bank and who could destroy the finances of smaller nations - Thailand, for instance, or Malaysia or Indonesia - without remorse.
Currency trading offered banks a way to take risks and fish for high returns; for bankers, it was an exciting break with the staid and respectable traditions of the business. Banks traded currencies on the spot; they traded currencies in the future; they traded options that would let them trade currencies in the future.
And somehow - even as the financial world began to change over the past few years - Allfirst and its two-man foreign exchange department just kept going.
Other regional banks pulled back and slowed down. They stopped betting so much of their own money. It was too volatile. Wall Street analysts reinforced that message.
But Allfirst kept getting deeper into foreign-exchange contracts. From $3.5 billion in 1999, to $4.9 billion last year, it kept the money moving. This was way more than most banks its size were dealing with. What Allfirst officials didn't realize until last week was just how much of a risk they had taken, because, they say, the loss of $750 million last year had been obscured by phony paperwork.
But if there was fraud, it was in the cover-up and not the loss. John M. Rusnak, the currency trader now at the center of a federal investigation, appears to have played the game as he learned it in the 1990s - and squandered three-quarters of a billion dollars in the process.
Top officials at Allfirst said last week that the news had come as a complete surprise. Allfirst Chairman Frank P. Bramble got a call on his car phone Monday afternoon alerting him to trouble. "I think we have a serious situation," Susan C. Keating, CEO of the bank, told him.
Bramble headed straight back to the bank, where the treasurer reported that bogus transactions were found in the foreign-exchange operation. "It was a significant amount," Bramble said. "I was staggered by it."
The news that day was no less staggering to the management of their parent company, Allied Irish Banks PLC.
Allied, one of the two big banks in Ireland, has its own happy memories of the 1990s, when Ireland boomed and the bank established itself as a respected and modern presence on the world financial scene. But the past two years have brought contraction and rumblings of a possible takeover. When the wake-up call came from Baltimore, the Dubliners could barely believe it.
Gary Kennedy, the executive in charge of financial operations, including the trading activities, was putting his 10-year-old daughter to bed and hoping to coax his 12-year-old son to go to sleep, too, when the phone rang last Monday at 9:30 p.m. at his Dublin home.
"I've just got a phone call with some very bad news from the United States," the bank's chief executive, Michael Buckley, told him. Kennedy had no idea what was coming next.
Buckley said he had just received a call from Keating, who told him what had been uncovered. Buckley wasn't screaming. It was more a tone of shock, surprise, concern. He and Kennedy had worked together for years, but they had never been through anything this bad and this huge. They needed a plan, and quickly, before word leaked and affected the market.
Kennedy went to sleep at 1 that morning, tossed and turned and woke up for good an hour and a half later. He, Buckley and a handful of other top executives of Allied Irish met after 7 that morning, shuttling between Buckley's and Kennedy's offices.
The executive suite atop Allied's campus of low-rise, modern buildings reflects what one Dublin economist called "Ireland's sexier bank." The walls aren't lined with scowling portraits of long-deceased bank founders, though the institution's roots date back more than a century. Big, bold-color landscapes and contemporary oil paintings fill the corridors, culled from the company's collection of 1,000 works of art.
They decided on a three-part plan. First was to halt trading immediately to contain the damage, the size of which was still unknown. Second was to suspend several executives in the trading area at Allfirst - not to punish them, Kennedy reasoned, but to gain their cooperation in the investigation without compromising the probe. And third was to dispatch a group on the first flight to Baltimore. Leading the contingent was the corporation's chief risk officer, Pat Ryan, whose announced retirement would have to wait.
Still, no one outside that group knew the immense secret as of late Tuesday. "It was an unreal feeling," Kennedy recalled, about holding this bombshell that he knew had global implications, "but there was so much on the agenda, you didn't have much time to think about it."
Others were pulled into the planning by then to prepare for the announcement Wednesday morning. An Internet posting informed the world at 7 a.m. Dublin time, the same time as most of Allied's 31,000 employees. Buckley appeared on a 7:30 a.m. radio news program. He followed that with a teleconference that drew 300 investment analysts and then a packed media briefing at the bank's conference hall.
Meanwhile, the corps dispatched to Baltimore joined about a dozen Allfirst employees in combing through every piece of paper behind every bogus trade to establish the extent of the damage.
Buckley declared that the bank was the victim of a "complex and determined fraud." He said that Rusnak had gone missing, which turned out not to be true but which drew hordes of British and Irish reporters and photographers to the quiet streets of Mount Washington, where Rusnak lives.
'Nervous people at Allfirst'
One of Rusnak's lawyers, Bruce Lamdin, said last week that he believed the bank had panicked and was trying to put all the blame for the huge losses on his client before even conducting an audit.
"Seems they should have done that a long time ago," Lamdin said. "It's a shame. It could have been handled a lot different, and there wouldn't have been this blow-up."
By late in the week, Rusnak was meeting with the FBI and investigators from the U.S. attorney's office in Baltimore, Lamdin said. "He's been up front in his discussions with them," the lawyer said. "I guess there are some very nervous people at Allfirst, wondering if they are going to have a job."
Rusnak is 37 and had been a currency trader in Baltimore for seven years. He had left a similar job in New York, telling a neighbor that he didn't want to put up with the pressure, but he arrived at what had been First National Bank of Maryland with the confidence born of a history of achievement and accolades.
He was a standout in public schools in Bristol Township, Pa. - a student council leader earning high enough marks to attend upper-rung Bucknell University after graduating from Harry S. Truman High School in 1982.
Family friends said his parents, Emil and Angelina, frequently expressed pride that their son made it to Bucknell from their working-class neighborhood, where many residents then worked for U.S. Steel's Fairless Works or Rohm and Haas, the chemical company.
A poised Rusnak is seen in the middle of a 1981 Trentonian newspaper photo of the high school student council. Seated at a desk, he looks perfectly comfortable, nonchalant even, and is surrounded by seven other council members - all girls.
Later, at Bucknell, Rusnak twice made the dean's list.
"Seamless" is the word that comes to Edward Robinson's mind when asked to describe how Rusnak managed in college. Robinson was the president of Rusnak's class of 1986, a group of optimistic and ambitious young people, and he described Rusnak as the kind of confident student who always seemed to have a smile on his face.
"The world was ours," said Robinson, now a senior advisor to a Boston-based philanthropic group.
By 1997, Rusnak was in full stride when a reporter for The Sun visited his cavernous trading room in Baltimore. With a colleague beside him and a bank of computers in front of him, Rusnak kept watch second by second as currency prices flickered by.
"Wait a minute," he said over the noise of a squawk box on his desk, and, turning to his keyboard, bought 8.6 million German marks for $5 million. A few seconds later, he sold the marks as the value of the dollar slipped slightly, and with that the bank had made a profit of $5,000.
That was the 1990s.
"It was the epitome of capitalism," said David Solin, a partner in a Connecticut firm called Foreign Exchange Analytics, and a former currency trader. Money was begetting money, in a context so pure that there were no tangible goods at all in the transaction.
Bankers loved this, and they loved their traders.
"You give them so much money," said Solin. "Or else so much rope to hang themselves."
By the end of the decade, the regional banks started to have second thoughts. A big institution in New York or London might have 100 currency traders and the most powerful computer available to help track and predict exchange rates. Every day, an estimated $2.2 trillion changes hands worldwide, but the profit margins are exceedingly thin. How could a second-tier bank hope to compete?
More and more, according to Solin and others, banks the size of Allfirst pulled back, doing currency exchanges when their commercial customers needed yen or euros but cutting down on what's called proprietary trading - speculation with the bank's money.
"Some guys today take long positions," said Solin, meaning they agree to buy a currency at some fixed point in the future at the current price, "and then they sit back and read a newspaper."
Told that Rusnak had been making, according to Allfirst, 60 to 100 trades a day, Solin said, "He's a very short-term guy, then."
And last year he apparently became a short-term guy who had run out of luck.
Rusnak, it seems, was buying yen predominantly. The Japanese currency fell drastically early in the year, rose over the summer, and then staggered downward again beginning in September. Allfirst officials said they have discovered phony contracts that seem to mask what was going on, but, in fact, the bank's money was hemorrhaging.
For a year, no one caught him. Allfirst officials appear not to have appreciated just how vulnerable the bank was. Foreign exchange was a small office that made about $10 million a year in profits - and it seemed to be going along fine, just as it had ever since the 1990s.
Most likely, Rusnak had gotten himself into a hole and was making riskier and riskier trades in an attempt to score big and get in the clear again.
"This guy is not trying to abscond with the money," said David Gilmore, who is also a partner at Foreign Exchange Analytics. "The sad story is, he was trying to preserve his job, pay his bills, feed his family."
Sun staff members Jeff Barker, William Patalon III, Bill Atkinson, Michael James and Frank Roylance contributed to this article.