Allied Irish Banks - The Currency Derivatives Fiasco

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Case Details:

Case Code : FINC032
Case Length : 11 Pages
Period : 1997 - 2004
Pub. Date : 2004
Teaching Note :Not Available
Organization : Allied Irish Banks
Industry : Banking
Countries : Ireland / US

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

Allied Irish Banks (AIB) was formed in 1966 by merging three leading Irish banks - the Provincial Bank, the Royal Bank and the Munster & Leinster Bank.

Founded in 1825, the Provincial Bank had pioneered the branch banking concept in Ireland, whereas the Royal Bank, established in 1836, was famous for its mercantile links. The Munster and Leinster Bank, formed in 1885, was the largest of the three banks with the most extensive branch network.

In the mid-1960s, in their efforts to expand their operations and seize the emerging opportunities in global markets, the three banks agreed to merge and form AIB. Over the decades, AIB became an increasingly global organization. It established a branch network in the UK in 1970s, followed by major investments in the US in 1980s.

In 1983, AIB made an initial investment in the equity of the US-based First Maryland Bancorp (FMB). In 1989, AIB purchased 100 percent equity stake in FMB.

In July 1997, AIB acquired another US-based company Dauphin Deposit Corporation which was later merged with FMB in 1999 to form Allfirst. Allfirst's treasury operations were divided into three departments - Treasury Funds Management (TFM); Asset & Liability Management (ALM); and Risk Control & Treasury Operations (RC&TO).

Each of these offices was headed by a Senior Vice-president who reported to the Allfirst treasurer. In 1993, the TFM was headed by Bob Ray (Ray) and it acted as the front office for Allfirst's treasury operations. It had four major functions - treasury funding; interest rate risk management; investment portfolio management; and global trading...

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