A foreign exchange fiasco, in which AIB overcharged customers on certain transactions, is now expected to cost the Republic's biggest bank up to €50 million. Siobhán Creaton, Finance Correspondent, reports
AIB has already deposited €25 million at the Central Bank, which is to be refunded to customers who paid over the odds when using AIB's foreign exchange services. It expects an investigation into the matter, ordered by the Irish Financial Services Regulatory Authority (IFSRA), will cost another €25 million.
IFSRA has ordered the bank to conduct an independent investigation to discover how it overcharged these customers for almost 10 years before the mistake was discovered. The inquiry has since been extended to ensure that all of its charges are being properly applied.
The inquiry, which is being headed by former Comptroller and Auditor General, Mr Lauri McDonnell, and a team of accountants from Deloitte, will cover all charges from 1996 which were notifiable to the regulator. It is expected to conclude by the end of July.
An AIB spokeswoman refused to provide a detailed breakdown of these costs. This investigation will look at all foreign exchange transactions where the wrong rate of commission was applied and will also examine the bank's policy of automatically assigning payment protection policies to certain mortgage holders without their permission.
The bank is also facing allegations that certain AIB branches systematically charged incorrect foreign exchange rates to customers in a bid to boost their profitability.
In a statement issued to the Stock Exchange yesterday, AIB said it would provide €50 million in its annual accounts to cover the entire cost of this episode. The bank has said that the amount of money to be reimbursed to its customers is unlikely to differ materially from €25 million.
AIB had initially estimated that it had overcharged customers by around €14 million. A team of investigators from IFSRA quickly raised that figure to €20 million and told the bank to pay a further €5 million in compensation to these customers.
AIB may also face further significant costs arising out of an investigation being carried out by the Revenue Commissioners into an offshore investment vehicle, called Faldor, used by five of its former senior executives that breached tax law.
Another five executives were found to have had "tax issues" in relation to accounts unconnected to Faldor.
The bank's business has not been adversely affected by these revelations with AIB stating that it is on course to record a more than 10 per cent increase in profits this year.
This latest inquiry is the most expensive for AIB. Two years ago it appointed international banker, Mr Eugene Ludwig, to investigate the $691 million trading fraud at its US subsidiary, Allfirst in Baltimore, Maryland. That investigation cost the bank $14.3 million.