1 6 7 11 ACA CAPITAL HOLDINGS, INC. - The New York Times

77 Pages·2011·0.23 MB·English

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8 FINANCIAL CRISIS INQUIRY COMMISSION
9 RECORDED INTERVIEW
10 LAURA SCHWARTZ
11 ACA CAPITAL HOLDINGS, INC.
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23 Job No.: 0163-194913
24 Volume 1 of 1
25 Transcribed by: Bonnie Panek
LAURA SCHWARTZ
CONDUCTED ON May 10, 2010
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1 P R O C E E D I N G S
2 MR. SEEFER: Thank you both for coming in.
3 As Robin has probably told you, we're with the FCIC.
4 Let me give you the blurb we give everybody before we
5 get into the meat of the interview. We were
6 established by a statute passed last year to figure out
7 the causes of the financial crisis, and so we're trying
8 to do that.
9 That statute tells us to look at
10 securitization practices. It tells us to look at
11 derivatives. It tells us to look at every institution
12 that failed or would have failed but for the receipt of
13 government assistance. We know that ACA was involved
14 in managing and investing in synthetic CDOs. Of course
15 we know about the Abacus transaction with Goldman.
16 And Goldman was one of those institutions
17 that received exceptional government assistance, so
18 that's why we contacted ACA and that's why we contacted
19 you. So, you know, we want to talk to you generally
20 about ACA's business, but of course we want to talk to
21 you specifically about the 2007 AC-1 deal also.
22 But before we do that what I like to do with
23 everybody so I know who they are and what they are in
24 context, can you just give me your educational
25 background and a brief description of your work
Merrill LAD
[phone] [phone] [phone] [phone] [phone]
LAURA SCHWARTZ
CONDUCTED ON May 10, 2010
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1 background since college?
2 MS. SCHWARTZ: My name is Laura Schwartz. I
3 went to the University of Michigan, graduated from
4 there, and then went to NYU and got a master of
5 business administration from NYU. I started working at
6 New York Life Insurance in January of 1984. I started
7 in their real estate investment group and I spent 14
8 years, 14 and a half years at the New York Life
9 Insurance Company in lots of different investment
10 roles.
11 The roles started as making commercial
12 mortgage loans and eventually evolved into -- from my
13 job there, running their structured product portfolio
14 which was asset backed, commercial mortgage backed, all
15 of those, credit cards, autos, you know, all of those
16 kind of structured products. And I left New York Life
17 in 1998 and went to Merrill Lynch where I became a
18 banker of residential and commercial mortgage backed
19 securities.
20 I was at Merrill until 2002, July, August of
21 2002, and I joined ACA right after Labor Day in 2002
22 and worked at ACA to -- through September until the
23 beginning of October of 2007, so just over 5 years, and
24 since then I've worked in a sales and training
25 capacity, structured products, at a smaller regional
Merrill LAD
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LAURA SCHWARTZ
CONDUCTED ON May 10, 2010
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1 broker dealer.
2 MR. SEEFER: Okay. So when did you join New
3 York Life?
4 MS. SCHWARTZ: In 1984, February probably,
5 1984.
6 MR. SEEFER: And you were there till '98?
7 MS. SCHWARTZ: I was there till '98, then
8 Merrill from '98 to '02, and with ACA from '02 to '07.
9 MR. SEEFER: Okay. Can you give me a
10 general description of your job responsibilities at ACA
11 in that five-year time period?
12 MS. SCHWARTZ: When I was hired at ACA I was
13 hired to be the portfolio manager for the structured
14 products, CDO asset management business, primarily
15 focusing on their ABS CDOs. I was hired as the
16 portfolio manager for their ABS CDOs, and I worked
17 there for three years in that capacity running the
18 credit and portfolio management on the ABS CDOs.
19 And then I believe it was '05. It may have
20 been '04 now. I don't even remember. My boss at the
21 time left. I think it was probably '04, and I took
22 over her role, which I became head of the asset
23 management for all of our products which included asset
24 backed securities, corporate bonds and leveraged loans,
25 and I continued to run that and the credit team's
Merrill LAD
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LAURA SCHWARTZ
CONDUCTED ON May 10, 2010
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1 portfolio management and credit until probably 2006.
2 And in 2006 they separated credit from
3 portfolio management so that our credit could support
4 other areas of ACA as well, and I ran the asset
5 management business until I left in September or
6 October of 2007.
7 MR. SEEFER: Okay. So we know from some
8 documents that we've seen that you were involved in
9 selecting the collateral in that Abacus transaction.
10 Did your job responsibilities prior to 2006 when they
11 separated the credit portfolio management functions
12 involve that?
13 MS. SCHWARTZ: Well, I would have said it
14 slightly different. I was not in charge. Our credit
15 department was responsible for reviewing and approving
16 or presenting to a credit committee all of the
17 underlying residential mortgage backed, commercial
18 mortgage backed corporate bonds. Whatever credit we
19 were reviewing was reviewed by the appropriate credit
20 committee or credit team and presented to a committee.
21 As the portfolio -- I was in charge of
22 portfolio management. Me, my team was able to use the
23 entire universe of approved credits and go through
24 those and select a portfolio based on all the credits
25 that had already been approved by ACA.
Merrill LAD
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LAURA SCHWARTZ
CONDUCTED ON May 10, 2010
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1 So it may seem like a slight nuance, but
2 everything that was in, for instance, the Abacus deal
3 had already really been approved and reviewed by our
4 credit team and our credit committee. So all we did,
5 we didn't select and approve the underlying credits.
6 We just selected them from a universe that had already
7 been approved.
8 MR. SEEFER: So is this on a CUSIP by CUSIP
9 basis, or is it more like approving Countrywide
10 mortgages?
11 MS. SCHWARTZ: No, no, no, CUSIP by CUSIP
12 basis.
13 MR. SEEFER: Uh-huh.
14 MS. SCHWARTZ: In fact, what our committee
15 did is because in a deal that a residential mortgage
16 backed -- let's take the heart of the discussion here,
17 residential mortgage backs.
18 MR. SEEFER: Uh-huh.
19 MS. SCHWARTZ: Generally one deal off of a
20 Countrywide shelf, for instance, since you mentioned
21 the name --
22 MR. SEEFER: Uh-huh.
23 MS. SCHWARTZ: -- would issue debt rated
24 from triple A all the way down to through double B and
25 even unrated tranches.
Merrill LAD
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LAURA SCHWARTZ
CONDUCTED ON May 10, 2010
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1 MR. SEEFER: Uh-huh, uh-huh.
2 MS. SCHWARTZ: So our credit team would look
3 at that deal overall to determine whether they liked
4 the shelf that it was being issued off of, the
5 underwriter, the servicer, all of those kind of things.
6 They would run multiple different stresses and then
7 they would recommend the lowest credit attachment point
8 that they were comfortable with.
9 So if they approved the triple B tranche
10 then anything triple B and above was eligible and
11 considered approved, so it wasn't necessarily like --
12 when you say CUSIP by CUSIP --
13 MR. SEEFER: Uh-huh.
14 MS. SCHWARTZ: -- we didn't put in every
15 single CUSIP.
16 MR. SEEFER: Uh-huh.
17 MS. SCHWARTZ: But if we approved the triple
18 B then we could use the double A and the triple A in
19 portfolios.
20 MR. SEEFER: Uh-huh.
21 MS. SCHWARTZ: If they only approved the
22 triple A then only that particular CUSIP could be used.
23 MR. SEEFER: Uh-huh. So -- thank you.
24 (Laughter.)
25 MR. SEEFER: I was asking something a little
Merrill LAD
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LAURA SCHWARTZ
CONDUCTED ON May 10, 2010
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1 different.
2 MS. SCHWARTZ: Okay. I'm sorry. I'm sorry.
3 MR. SEEFER: That was valuable information
4 anyway, so I appreciate it. But all I really wanted to
5 know was the role you were performing in the Abacus
6 deal, were those roles you were performing at ACA for
7 other deals before 2006, from 2004 throughout when you
8 were head of asset management? I was just trying to
9 just draw the distinction between your description of
10 your job responsibilities.
11 MS. SCHWARTZ: No real distinction.
12 MR. SEEFER: Okay.
13 MS. SCHWARTZ: I was always basically in
14 charge of the ABS CDO business, so --
15 MR. SEEFER: And part of that included
16 selecting from this existing universe collateral for
17 synthetic CDOs?
18 MS. SCHWARTZ: Or my team selecting, but
19 ultimately all reporting to me so I would take
20 responsibility for that, yes.
21 MR. SEEFER: Okay. So we've -- I mean,
22 ACA's counsel has responded to our document request,
23 and Robin, I think we talked about this earlier, but
24 they've just given us a listing by year of various
25 deals that I will show you, and it starts there but
Merrill LAD
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LAURA SCHWARTZ
CONDUCTED ON May 10, 2010
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1 most of them are on the second page.
2 And all I really want to know is like the
3 Abacus 2007-1 deal with Goldman, are these deals where
4 you were essentially performing the same type of
5 function as you were in that deal?
6 MS. SCHWARTZ: Oh, ACA --
7 FEMALE SPEAKER: That's a selection for
8 every one?
9 MS. SCHWARTZ: For every single one?
10 MR. SEEFER: Yeah, just generally.
11 MS. SCHWARTZ: Oh, general, yes. ACA
12 selected the assets in every single one of these deals.
13 MR. SEEFER: Okay.
14 MS. SCHWARTZ: Sorry. I don't --
15 MR. SEEFER: No, that's great. And then you
16 or your team were the ones personally involved in doing
17 that? Yes?
18 MS. SCHWARTZ: The credit team of course
19 reviewed and approved and presented, and then we
20 constructed portfolios from all of those approved
21 credits. This one I was -- I came in at the closing
22 time, but it was a managed deal so I continued to be
23 responsible for this.
24 FEMALE SPEAKER: She's pointing to the first
25 one.
Merrill LAD
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LAURA SCHWARTZ
CONDUCTED ON May 10, 2010
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1 MS. SCHWARTZ: I'm sorry. The very first
2 one, ACA DS 2002-1. I was there at the closing, but
3 this was an actively managed deal, so responsible on an
4 ongoing basis, and these two corporate deals were done
5 actually before I joined as well.
6 I'm pointing to ACA CDS 2001-1 and 2002-1,
7 but those were actively managed. I was responsible on
8 an ongoing once I took over the entire asset management
9 platform.
10 FEMALE SPEAKER: Did you also work on this
11 last one in 2007 since you left in 2007?
12 MS. SCHWARTZ: I believe that's the Goldman
13 deal, so yes, that one closed before I left.
14 MR. SEEFER: That's a CLO.
15 FEMALE SPEAKER: A CLO.
16 MS. SCHWARTZ: That's a CLO.
17 FEMALE SPEAKER: Right.
18 MS. SCHWARTZ: All of these were -- I was
19 hired just --
20 FEMALE SPEAKER: Right.
21 MS. SCHWARTZ: But this is a Goldman deal,
22 too --
23 MR. SEEFER: Okay.
24 MS. SCHWARTZ: -- just so you know.
25 MR. SEEFER: Okay.
Merrill LAD
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