The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
August 30, 2010
Phil Angelide
Clwirmnll
Hon. Bill Thomas
Vice Cllairman
Via Email & Mail
Mr. Joseph Cassano
c/o Mr. James Walden, Esq.
Gibson Dunn
200 Park Avenue
New York, NY 10166-0193
jwalden@gibsondunn.com
Re:
Financial Crisis Inquiry Commission Hearing on June 30, 2010
Brooksley Born
Commissioner
Byron S. Georgiou
Commissioller
Senator Bob Graham
Commissioner
Dear Mr. Cassano:
Thank you for testifying on June 30, 2010 in front of the Financial Crisis Inquiry
Commission and agreeing to provide additional assistance. Toward that end,
please provide written responses to the following additional questions and any
additional information by September 10,2010. 1
Keith Hennessey
Commissioner
Douglas Holtz-Eakin
Commissioner
Heather H. Murren, CFA
Commissioner
John W. Thompson
Commissioner
1. Please describe the due diligence that AIGFP performed on the COOs on
which it wrote credit protection. Were you aware of the quality of the
mortgages that comprised the underlying assets of the CDOs? Did you do
direct analysis of the loan data?
2. Please describe the rationale for the premiums AIGFP charged its
counterparties for credit default swap protection on multi-sector CDOs.
3. Did AIGFP ever test the consequences of a scenario whereby AIG would
be downgraded by the major credit rating agencies? If so, what were the
results of that stress test?
Peter J. Wallison
Commissioller
I The answers you provide to the questions in this letter are a continuation of your testimony and
under the same oath you took before testifying on June 30, 20 I O. Further, please be advised that
according to section 1001 of Title 18 of the United States Code, "Whoever, in any matter within
the jurisdiction of any department or agency of the United States knowingly and willfully fa lsifies,
conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious
or fraudulent statements or representations, or makes or uses any false writing or document
knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined
under this title or imprisoned not more than five years, or both."
Wendy Edelberg
Executive Director
1717 Pennsylvania Avenue, NW, Suite 800 • Washington, DC 20006-4614
202.292.2799 • 202.632.1604 Fax
--e-.
*
The FCIC appreciates your cooperation in providing the information requested. Please do not
hesitate to contact Sarah Knaus at (202) 292-1394 or sknaus@fcic.gov if you have any questions
or concerns.
Sincerely,
Wendy Edelberg
Executive Director, Financial Crisis Inquiry Commission
cc:
Phil Angelides, Chairman, Financial Crisis Inquiry Commission
Bill Thomas, Vice Chairman, Financial Crisis Inquiry Commission
September 13, 2010
Via Email & Mail
Phil AngeJides
CI/Qirmall
Mr. Joseph Cassano
c/o Mr. James Walden, Esq.
Gibson Dunn
200 Park A venue
New York, NY 10166-0193
jwalden@gibsondunn.com
Hon. Bill Thomas
Vice Cllairmall
Re:
Financial Crisis Inquiry Commission Hearing on June 30, 2010
Dear Mr. Cassano:
Brooksley Born
Commissioner
Byron S. Georgiou
This letter follows up on the letter dated August 30, 20 I 0 asking you to answer questions
in writing. Please provide a written response to the following additional question by
September 24, 20 I 0. 1
Commissioller
I.
Senator Bob Graham
COlllmissioller
During the hearing Chairman Angelides discussed the collateral call timeline
below which chronicles margin calls between AIG and Goldman Sachs.
Please review the timeline linked below and identify key items that should be
included or items that should be revised:
http://www.fcic.gov/hearings/pdfs/20 I 0-070 I-Goldman-AIG-CollateralCall-time line. pdf
Keith Hennessey
Comm issioller
Commissioller
The FCIC appreciates your cooperation in providing the information requested. Please
do not hesitate to contact Sarah Knaus at (202) 292-1394 or sknaus@fcic .gov if you have
any questions or concerns.
Heather H. Murren, CFA
Sincerely,
Douglas Holtz-Eakin
CommissIOner
John W. Thompson
Commissioner
Peter J. Wallison
Commissioner
Wendy Edelberg
Executive Director, Financial Crisis Inquiry Commission
cc:
Phil Angelides, Chairman, Financial Crisis Inquiry Commission
Bill Thomas, Vice Chairman, Financial Crisis Inquiry Commission
I The answers you provide to the questions in this letter are a continuation of your testimony and under the
same oath you took before testifYing on June 30, 2010. Further, please be advised that according to section
1001 of Title 18 of the United States Code, "Whoever, in any matter within the jurisdiction of any department
or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme,
or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes
or uses any false writing or document knowing the same to contain any false, tictitious or fraudulent
statement or entry, shall be fined under this title or imprisoned not more than five years, or both ."
1717 Pennsylvania Avenue, NW, Suite 800 • Washington, DC 20006-4614
Wendy Edelberg
Executive Director
202.292.2799 • 202.632.1604 Fax
0"
*
GIBSON DUNN
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166-0193
Tel 212,35l.4000
www.gibsondunn.com
October 8, 2010
Jim Walden
Direct: 212.351,2300
Fax: 212,351.5300
JWalden@gibsondunn,com
BY EMAIL
Client: T 19983-00001
Wendy Edelberg
Executive Director
Financial Crisis Inquiry Commission
1717 Pennsylvania Avenue, NW, Suite 800
Washington, DC 20006
Re: Follow-up questions to Joseph Cassano
Dear Ms. Edelberg:
I write as counsel to Joseph Cassano in response to the follow-up questions sent on August
30,2010, and September 13,2010. The responses to your questions are below.
First, in your August 30 letter, you asked about the due diligence that American International
Group, Financial Products Division ("AIGFP") performed on the collateralized debt
obligations ("CDOs") on which it wrote credit protection. Mr. Cassano previously testified,
both in writing and orally, about the diligence and approval process relating to the CDOs on
which AIGFP wrote protection. As set forth on page two ofMr. Cassano's written
testimony, the approval process had several stages, and AIG reviewed everyone of AIGFP's
credit-default swap ("CDS") transactions according to standards that AIG had set. In
addition, AIGFP performed a fundamental analysis of each proposed transaction, including
of the proposed terms and conditions and the underlying assets within the portfolio. (See
Hearing Transcript, June 30, 2010, pp. 169,209.) AIG continued to monitor the portfolio
throughout the lifetime of the deal. (See Cassano written testimony p. 3.) That said, socalled "CDO Managers" (not employed by AIGFP) were contractually permitted to substitute
new assets for maturing assets under the terms of the CDOs. AIGFP had personnel to
periodically review collateral substitution and raise complaints or concerns about substitution
decisions by CDO Managers. Mr. Cassano did not handle this process personally, although
he believed AIGFP had a very capable staffto do so. However, AIGFP had no authority, as
we understand it, to prevent substitution of collateral by CDO managers.
Second, you asked about the rationale for the premiums AIGFP charged its counterparties for
CDS protection on multi-sector CDOs. Mr. Cassano was not involved in directly negotiating
contracts or premiums. However, as he testified during the hearing, he believed that
AIGFP's pricing was competitive. (See Hearing Transcript, June 30, 2010, p. 210.)
Third, you asked whether AIG ever tested the consequences of a scenario whereby AIG was
downgraded by the major credit rating agencies. During Mr. Cassano's tenure at AIGFP,
Brussels· Century City' Dallas' Denver· Dubai • London' Los Angeles' Munich' New York· Orange County
Palo Alto' Paris' San Francisco· Sao Paulo' Singapore' Washington, D,C,
GIBSON DUNN
Wendy Edelberg
October 8, 2010
Page 2
AIGFP monitored its liquidity. (See Hearing Transcript, June 30, 2010.) Among other
things, AIGFP had a committee tasked with reviewing AIGFP's liquidity and potential
liquidity needs on a continuous basis. (See Hearing Transcript, June 30, 2010, p. 181-82.)
AIGFP conducted quarterly liquidity analyses, among other things, that incorporated highly
stressed market assumptions, including scenarios that assumed downgrades of AIG's longterm credit rating. This information was shared with AIG. We believe AIG has documents
reflecting these liquidity analyses. In addition, AIGFP could liquidate assets if necessary to
manage liquidity risk. During the relevant time period, AIGFP managed approximately $50
billion in securities that it could liquidate and use as collateral. (See Hearing Transcript, June
30,2010, p. 182.)
Fourth, in your separate letter dated September 13,2010, you requested: "Please review the
time line linked below [of collateral calls by Goldman Sachs] and identify key items that
should be included or items that should be revised." Some revisions and additions to the
timeline are below. In addition, as a general matter, we note that the timeline identifies Elias
Habayeb and Bill Dooley as AIGFP employees. Both were actually employees of AIG, not
AIGFP.
Date
Summary
Description
Late July - Early August
2007
Shortly after learning of the
Joe Cassano (AIGFP)
informs Bill Dooley (AIG) of Goldman collateral call, Joe
Cassano told Bill Dooley
Goldman collateral call
about the call
On or before August 6, 2007
Goldman agrees to accept
$600m to resolve the
collateral call
Goldman agrees to accept
$600m to resolve the $l.2m
collateral call
August 7, 2007
AIGFP informs AIG's
external auditors of
Goldman's collateral call
Joe Cassano (AIGFP)
discusses the Goldman
collateral call with
PricewaterhouseCoopers
September 5, 2007
Meeting between AIGFP and
Goldman
Joe Cassano (AIGFP) and
Andrew Forster (AIGFP)
meet with Mike Sherwood
(Goldman) and Neil Wright
(Goldman) to discuss finding
an objective procedure for
resolving collateral calls
GIBSON DUNN
Wendy Edelberg
October 8, 2010
Page 3
September 11, 2007 (revision AIGFP internal emails re
to existing entry)
summary of collateral calls
to date, collected in
preparation for call with AIG
the following day
Andrew Forster (AIGFP)
requests a summary of
collateral calls received to
date, because he "need[s] to
go through them with the
accountants tomorrow." In
response, Tom Athan
(AIGFP) writes to Andrew
Forster (AIGFP) and Adam
Budnick (AIGFP) ....
September 12, 2007
AIGFP conference call with
AIG
Conference call with AIGFP
and AIG at which they
discussed collateral calls
November 1,2007 (revision
to existing entry)
SocGen declines to follow
through on collateral call
based on Goldman's marks
Joe Cassano (AIGFP) writes
in an email to Elias Habayeb
(AIG) that there was "one
other collateral call from one
counterpart SocGen which
was spurred by GS calling
them. [sic] In that case we
also disputed the call and
have not heard from SocGen
again on that specific call."
November 8, 2007
Joe Cassano (AIGFP)
discusses collateral calls
during AIG earnings call
Joe Cassano (AIGFP) tells
analysts and investors about
collateral calls and valuation
differences with
counterparties, explaining
that "some people give us
numbers say, 65 or 55, and
on very similar or [the] same
deals, people have come in
with numbers of90 and 95."
November 14,2007 (revision
to existing entry)
Andrew Forster (AIGFP)
email to Joe Cassano
(AIGFP) re collateral calls
Andrew Forster (AIGFP)
writes that AIGFP received
significant collateral calls
from SocGen ($1. 7b) based
on Goldman marks; and
Merrill ($610m). Asks if
GIBSON DUNN
Wendy Edelberg
October 8, 2010
Page 4
AlGFP should dispute and
attempt to reach
compromIse.
SocGen did not actually
make the collateral call it
indicated it would make on
this date. (Tab 33)
November 29,2007 (revision
to existing entry)
Meeting between AlGFP,
AlG, and PwC re Goldman
collateral calls
.... AlGFP discusses the
differences between its
valuations and Goldman's
and AlGFP's belief that
Goldman's marks were low,
and provides information
contrasting Goldman's marks
with AlGFP's marks (see GS
marks spreadsheet)
March 7, 2008
Joe Cassano (AlGFP) emails
AlG regarding call with
Goldman about collateral
dispute
Joe Cassano (AlGFP)
describes to Martin Sullivan
(AlG), Elias Habayeb (AlG),
Bob Lewis (AlG) and others
a call with Mike Sherwood
(Goldman) in which Cassano
told Sherwood that "even
with the very conservative
pricing and valuations
[AlGFP has] used," AlGFP
is "no where near
[Goldman's] pricing."
Cassano tells Sherwood that
"the only way to settle this
issue is to get dealer quotes,"
but Sherwood says that he
"did not think a dealer poll
was a good idea." Cassano
tells AlG that it "seems clear
to me that Goldman does not
want to go to dealer polls,"
and recommends continuing
to negotiate with Goldman.
GIBSON DUNN
Wendy Edelberg
October 8, 2010
Page 5
Please let us know whether we can be of further assistance.
Sincerely,
C\.VJ%--~
Walden
FCIC LETTER 2.DOC
@FedFRASER