1. Argyle Conversations
by Argyle Executive ForumSM
Greg Walker, Managing Director
and Counsel, UBS AG, and Bill
Mariano, Esq., Director,
E-Discovery, Applied Discovery
Inc., discussed proposed and
recently passed litigation
regarding disclosure for
asset-backed securities, conflicts
of interest and other securities
litigation and their effect on
businesses both in the U.S. and
globally.

2. Argyle Conversations
Page 2
May 09, 2012
BILL MARIANO: Can you give us a general idea of your role at UBS?
GREG WALKER: I’m a managing director and counsel at UBS AG and have been with UBS for 10 years. I am a
senior member in the legal department dedicated to its investment banking business. My charge has been within
the fixed income department with a focus on debt securities and other complex financial transactions such as
securitizations, financings and related derivatives transactions. In recent years, I have also been actively involved
in restructuring and unwinding many of these transactions as they became distressed during the recent financial
crisis. I also advise internal and external litigators and have played a role in their strategy sessions regarding
threatened and actual litigation, select investigations and dispute resolution. My experience runs the gamut from
collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), mortgage-backed securities (MBS),
asset-backed securities (ABS), “warehouse” financing transactions designed to facilitate additional securitization
transactions, and acquisitions and sales of various business divisions. I also played a key role in the creation of the
Dillon Read investment management venture as well as its dissolution and the creation and transfer of assets to
the Swiss National Bank’s fund that purchased illiquid assets from UBS in 2008, much like the original TARP idea.
In addition, I analyze proposed and pending regulatory changes that impact these businesses, mitigate potential
issues arising in connection with those regulatory changes and highlight issues that potentially impact other
businesses within the investment banking division.
We’re coming up on the end of the first quarter of 2012. What challenges have you faced so far this
year, especially regarding some of the new regulations that have come out over the last couple of
years? And what else is happening for you this year?
2012 continues to be a period in which we are wrestling with legacy assets with an eye on costs associated with
Basel III. Right now, UBS is following Basel II.5, and its Tier 1 equity is a prized aspect of its role in the financial
markets. So working out those legacy assets, restructuring them and getting them off our balance sheet in a
manner that preserves value continues to be a prime directive. In the current regulatory environment, all financial
institutions are facing increasing pressure to become more efficient in handling their balance sheet in anticipation
of potential regulation and to meet shareholder expectations.
For example, UBS recently announced in its quarterly report that it entered into a restructuring and settlement
agreement with a monoline financial insurance company, the result of which is expected to ultimately lead to a
reduction in UBS’s risk-weighted assets by more than 14 billion Swiss francs. While not yet finalized, this is one of
my projects that is getting significant attention because of the numbers involved and the focus from global senior
management. I also have been highly involved in other restructurings, liquidations and sales involving
comparatively smaller amounts ranging from a few hundred million to a billion dollars. We’re trying to work our
way through these assets in a way that’s satisfactory for all the partners concerned. Some market participants
have taken the view that certain financial institutions may be under pressure to get out of these positions at
fire-sale prices, but, luckily, that has not been my experience. Besides securitized products, I inherited coverage of
our portfolio of auction rate securities. Although I wasn’t involved in the actual settlement discussions UBS had
with the regulators, I was active in the related call/put rights offering and since have been involved in the
restructuring and sales of those products.
Is the transition from Basel II.5 to III something that came with the new year, or has UBS been
working on that for a while?
UBS has been working on this transition for a while. But as we get closer to the transition date, it has become
apparent that UBS has been somewhat of a leader in that regard. UBS is consistently making our Tier 1 capital a
focal point and our reduction of risk-weighted assets a much greater priority than other institutions. Other
institutions are certainly doing it, and it is a priority for them, but I think UBS is more upfront about trying to effect
that goal.
Are there peers in your industry to whom you look to make sure that you’re keeping up with
developments or to see how they’re handling similar issues? Or are decisions based on regulations
primarily made internally to stay ahead?
We don’t necessarily benchmark our trades against those of other institutions, but I think we do often find
ourselves setting the pace. If you look back at the financial crisis, we were the only institution to effect the type of
assets sale that was contemplated by the TARP legislation. Again, that initiative was achieved through UBS’s sale
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3. Argyle Conversations
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May 09, 2012
of certain key assets to an investment fund owned by the Swiss National Bank. UBS was also one of the early
movers in identifying the impact of structured products on its balance sheet and taking decisive action to mitigate
that impact. That was evident in UBS’s decision to liquidate some of our CDO exposures. And we’ve been
extremely transparent about that decision.
UBS has chosen to be a leader in regulatory developments in the areas in which we focus because it’s the right
thing to do and ultimately leads to good business. UBS is very reputation-conscious, which leads us to strike the
right balance between being aggressive in business by trying to be the first mover in some initiatives and being a
little more transparent than others. Take the CDO liquidations, for example. In 2007, the rating agencies’ sudden
downgrade of residential mortgage-backed securities triggered automatic events of default in these CDOs.
Consequently, some of those CDO structures proved untenable. If you were the holder of a large super-senior
tranche at that time, you were witnessing the CDO assets bleed cash to lower tranches, leaving little left over to
cover the senior liabilities when the CDO finally terminated. We were one of the first institutions to recognize this
and took decisive action. Rather than watch these assets bleed away and pretend that it wouldn’t affect the
valuations of the super-senior tranches, UBS improved its valuations and moved to liquidate the CDOs and realize
on the assets as soon as possible, thereby terminating the super-senior tranches.
How much time do you spend anticipating where regulations are going to go or where the burdens
will be placed on various financial institutions due to regulation? Or is UBS more focused on being
forward-seeking, doing the right thing and letting the regulations catch up?
It depends. In the securitization area, UBS is very focused on current regulations like Rule 17g-5 and Rule 15Ga-1.
Rule 17g-5, which requires rating agencies hired by issuers to share with non-hired rating agencies any analytical
information they receive, was promulgated by the SEC in response to potential conflict of interest issues. The
regulation is there to make sure that the agencies are careful in their analysis and to make the facts that are
available to higher-grading agencies available to other rating agencies as well. Now other rating agencies have the
opportunity to issue different ratings if they feel that a different rating is warranted. It also removed the barrier to
entry for other rating agencies. If someone wants to get into the business of rating ABS transactions, they now
have a web page they can visit to see that data and then have a basis of issuing a rating. Before, they may not
have had that data and therefore may not have felt comfortable moving in that direction. The rule raises more
operational issues for underwriters and sponsors and can lead to legal exposure through engagement letters with
the hired rating agencies. There are also proposed conflict of interest rules emanating from Section 621 of
Dodd-Frank, which are a concern because of their potential ambiguity and unintended consequences that are
unrelated to the understandable policy goals.
Like many institutions, UBS is very focused on various aspects of the Dodd-Frank Act, particularly the proposed
Volcker Rule, because it’s potentially a significant game changer and could have many unintended consequences.
Some new regulations, like the disclosure required regarding the level of due diligence performed in connection
with a securitized offering, are more geared toward RMBS, which UBS doesn’t issue, but impacts issuance of
commercial mortgage-backed securities as well, a product UBS will soon issue directly.
Rule 15Ga-1 requires securitizers to provide certain demand and repurchase information for all assets originated or
sold by the securitizer that were the subject of a demand for repurchase or replacement for breach of a
representation or warranty regarding the pool assets with respect to all outstanding ABS held by non-affiliates of
the securitizer. Like other securitizers in the market, UBS timely filed its initial Form ABS-15G on February 14th. In
Form ABS-15G, UBS reported all such demand repurchase claims in accordance with the rule. However, that
doesn’t necessarily say that the claims actually have merit. The filing just puts forth the fact that the claims were
made, how the claims were disposed of and what the current status of the claims are. Given that this is a new rule
with a new form that creates certain ambiguities, it is prudent for market participants to be transparent in
describing how these claims are categorized. If one were to compare UBS’s Form ABS-15G filing with other
institutions’ filings, it would be clear that the disclosure in UBS’s filing is far more robust and detailed. So was UBS
a first mover with respect to this particular issue? No, we instead decided to actively participate in broad industry
initiatives to assess where this development would go, what it might mean and how the rule would be interpreted
by other market participants. However, in doing so, we set our own heightened standard of transparency.
Was that new for everybody?
Yes. In promulgating Regulation 15Ga-1, the SEC laid out certain repurchase demand categories, but market
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4. Argyle Conversations
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May 09, 2012
participants universally agree that certain of those categories are ambiguous and are therefore subject to
interpretation. So UBS made sure that its categorization methodology was clear and well-described so that the data
is easily understood by investors. We were dedicated to ensuring that UBS had superior transparency with respect
to its Rule 15Ga-1 filing.
Since the financial crisis, have you seen an uptick in the number of these regulations, specifically in
new types of litigation?
There have been many proposed regulations, such as the proposed risk-retention and conflicts of interest rules
that have not yet been finalized by the regulators. There are a significant amount of RMBS claims against issuers
and underwriters regarding disclosure, and there are claims from monoline insurance companies as well as from
investors with respect to repurchase claims. A lot of those investor claims fall into the category of
misrepresentation, including negligence, fraud and other violations of securities laws. Some investors have made
frivolous claims in an effort to obtain loan files in discovery that, by contract, they would otherwise have no right to
review for the sole purpose of furthering a repurchase claim. We’ve also seen litigation concerning disclosure on
cash and synthetic CDOs, and we’ve seen some CDS litigation as well. But there’s been more of a focus on RMBS
due to the sudden depreciation in housing values during the financial crisis.
Has there been structural change within your legal department in order to deal with the growing
number of litigations for the last couple of years, or does it continue to operate as it was constructed
before then?
We took a step back and made an assessment on how we could improve if we needed to do so. We looked at the
processes UBS had in place and assessed our diligence standards, how we approved transactions and how we
effected the transaction documentation. For example, we analyzed how much and what type of diligence we
historically performed on RMBS and CMBS transactions. In anticipation of some of the new regulations, we
determined that we would not only analyze the underlying pool of assets, but we would also describe how we
undertook such analysis. This process is now required by regulation. Of course, we weren’t doing any new
securitization transactions during the financial crisis, but we were prepared to proceed with new transactions by
implementing this process, particularly with respect to new CMBS transactions.
Are there any ways that you, both as a legal department and as a company, have sought to mitigate
risk other than what we’ve already discussed when it comes to these regulations and what they’ve
imposed on us?
We now have attorneys and counsel who monitor and advise us on various regulations from the moment these
regulations are proposed through the date on which they take effect. I have to stress that many of these
regulations have yet to take effect, and there are many potential changes coming about through regulation
litigation. Rule 15Ga-1 is one of the few regulations fully in effect. The market is still waiting on final regulations
concerning risk retention and conflicts of interest. We monitor developments regarding those regulations, but there
is still a great deal of debate as far as what risk retention should look like, what constitutes a conflict of interest,
what the scope of exceptions to these rules should be and how those issues can be monitored. So we’re mindful of
that.
You bring up a good point about how a lot of these rules haven’t passed yet. They exist as ideas, but
they have no effect right now. How does that impact the business, knowing that rules are out there
that haven’t yet passed but could pass or will in some form eventually pass?
The uncertainty surrounding these pending regulations has had a significantly negative impact on market
participants. If you don’t know the form or scope of the final rules, it’s extremely difficult to set your strategy. For
example, we’re proceeding with our commercial real estate mortgage securitization efforts with the knowledge that
we may have a risk retention issue when the final rules go into effect, though how that issue will manifest itself is
not yet determined. With risk retention, a securitizer may need to retain a 5 percent piece that can’t be directly
hedged. However, we won’t let future changes prevent us from doing business now even as we develop potential
strategies for when and how the rule takes effect. We have seen the proposed regulations prevent others from
doing business, though, which has had an effect on us because it results in fewer opportunities to interact with
clients.
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5. Argyle Conversations
Page 5
May 09, 2012
How have these regulations, proposed rules, upticks in litigation and the possibility of new types of
litigation affected either the hiring of outside counsel or the type of expertise you look for in outside
counsel?
Any outside counsel will tell you that in the current market environment there is an expectation for that counsel to be
cognizant of recent proposals, general consensus among market participants with respect to those proposals and the
future direction of the market, which has required them to invest a substantial amount of time and effort in keeping
abreast of issues that may not necessarily translate into billable time and effort. But it’s assumed that they’ll do that. On
the other hand, it also provides opportunities for law firms to help us assess how we’re going to deal with a specific
problem. We hire outside counsel to give us advice on a particular area and make sure that we truly understand the
issue. It’s very targeted. However, with issues such as risk retention, while we are looking at it and thinking about it, we
see a lot that still has to be done. We haven’t necessarily drafted a final set of proposals as far as what we’re going to do
about it, where we’re going to book it and so forth, but we have engaged counsel in that regard.
As you’ve said, some of these rules have not been passed, so it’s up to leading companies like UBS to
forge ahead. It seems in the financial world that so much of what is done regarding how to deal with
these new rules is based on the philosophy of individual banks. So your outside counsel might have
three other banks as clients, and they might be handling the same rule in three different ways
because those banks are leveraged or are leaders in three different areas. Do you feel that a deeper
level of collaboration or integration with your outside counsel is required, letting them in on what
your governing philosophies are going to be, in order to work with them in dealing with these new
issues?
There is now a great deal more discussion about our philosophy in our talks with our outside counsel. UBS is a
complicated global financial institution and the potential ramifications of these regulations cannot be ignored. To
make it easier, we work with counsel that know us, are cognizant of the discussion, know the proposals and can
give us some idea of the big-picture perspective of where things might go for us. We gravitate towards counsel
that we feel have the right blend of expertise, and we utilize different counsel for different product areas. That is
certainly a focus for us now. Before these new regulatory issues came to the forefront, we took a much more
targeted approach. For a transaction, we would talk to a transaction lawyer; for expertise on a regulation, we’d call
a certain regulatory lawyer. Now we take much more of a composite approach.
When we partner with outside counsel, we ask them to advise us on regulatory matters and possible
developments. Some of them are happy to do that as part of the relationship; but at some point, we think it’s
appropriate to compensate them for their analysis. We also consider how to work with our outside counsel on our
current transactions. We are doing a fair amount of business and we’re doing it quite well, and our outside counsel
has been participating in these efforts as well.
Some of the counsel with which we’ve worked have anticipated our direction, steered opportunities to us and
made introductions for us. I can’t tell you how important that is. If someone were to say, “You should talk to
such-and-such a company,” but one investment bank wouldn’t be covering that company, value isn’t necessarily
added there. Value is added when outside counsel knows of specific, sometimes unconventional or unexpected,
opportunities and things that we can work on. There’s one firm in particular with which we’ve dealt on several
go-to types of transactions, such as when we sold $15 billion worth of RMBS into a fund. The same counsel
represented us in the disposition of illiquid assets to the fund managed by the Swiss National Bank. They’ve also
advised us regarding regulatory matters as well as garden-variety securitizations, underwritings and financing, and
they continue to distinguish themselves and remain necessary to our discussions by anticipating where we’re going
and making introductions to opportunities for us. We very much appreciate that, which works in their favor. As
UBS has shifted away from securitization outside of commercial mortgage-backed securities and toward different
types of financing and strategic partners, that firm is still very much a part of those discussions and continues to
be our go-to firm.
More than being just a good-faith favor, it shows that they understand your direction and anticipate
what would be a good opportunity for you.
Very much so. One of the things we’ve been looking into is financing certain alternative energy sources, and the
same firm has helped us make introductions and consider the structures.
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6. Argyle Conversations
Page 6
May 09, 2012
Let’s talk about globalization. We’ve seen regulation changes all over the world; they’re not just U.S.
based. The E.U. has some new regulations, for example. How does that affect a global company like
Swiss-based UBS when they have to deal with certain regulations here in the U.S. and different
regulations in other areas of the world?
We certainly have to be cognizant of global regulatory changes that affect UBS. For example, there’s Directive 22 in the
European Union, which mandates that investors do a certain amount of due diligence, and if they don’t, there has to be a
certain amount of risk retention associated with that. People have to keep in mind the marketing of structured products
in the E.U., and one of the things we’ve been doing is not selling CLOs as much over there as we might otherwise
because the demand is greater elsewhere and the regulation is such that the market is still trying to figure out how to
make it work. So we are cognizant of the regulations that are currently in effect as well as those that may be on the
horizon. It’s almost inverted, in a sense, in that we have to educate other parts of our firm about how the U.S. is
approaching its regulations because the reach of some of these regulations goes beyond the U.S. to a surprising extent.
We have global customers, and we want to make sure that those global customers don’t find themselves inadvertently
dealing with a U.S. regulation or preparing to deal with a U.S. regulation.
Are there any lingering rules or regulations in the E.U. that have been unable to get the approval
needed to pass, like the problems we’ve been having with Congress here in the U.S.? If so, does that
create uncertainty in the E.U.? Or have those rules passed in the E.U. and it’s now just a matter of
interpretation?
I’d have to get back to you on that. I haven’t really thought about E.U. products and how they’re being sold
because I haven’t restructured any E.U. products in the past few years. Regarding the conflict of interest issue, I
believe that there are regulations in effect, but our focus has been on U.S. regulations.
Do the E.U. regulations model themselves after U.S. regulations? Do they overlap a lot?
The E.U. regulations overlap with U.S. regulations a fair amount, but there is some divergence as well. For
example, the burden of maintaining risk retention insurance is usually placed on the issuer in the U.S. model, but
in the E.U. model, that burden may be placed on the investor if it does not perform the requisite due diligence.
Is there anything else you would like to add?
I think the challenge right now for general counsel is to be efficient in monitoring the status of pending
regulations, how those pending regulations might be implemented and how they’ll affect businesses while tending
to the current organic needs of an institution. It’s difficult to do. You have to know how to leverage, how to
manage and when you really need to be an expert on an issue. There’s a fine line between keeping an eye on
issues down the road and being over-prepared for something that may never come to fruition. But then, you don’t
want to be unprepared for something that will go into effect soon because there will at least be operational
considerations to implement a new regulation. That’s what we’re trying to work on as a team both internally
regarding legal compliance and externally with our outside counsel.
I think you have to set your own priorities, know where your institution is going, try to anticipate where it may go
and then be ready to respond. Internal counsel has to be a practitioner of all trades, but may not be a master of
many, so we have to be prepared to do crash-course learning in order to effectively advise people when they have
deep-dive questions or issues.
**********************************************************
BIOS:
Greg Walker
Greg Walker is a mdirector and counsel at UBS AG, where he has focused for the past 10 years on fixed income
securitized and structured transactions. He regularly advises on public and private offerings, principal investments
and acquisitions, securities repurchase agreements, asset-based and synthetic financings, sales and trading issues,
and restructurings. Prior to joining UBS, he was an executive director and counsel at Morgan Stanley, a senior
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7. Argyle Conversations
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May 09, 2012
credit analyst at Moody's Investors Service and associate attorney at the firms of Brown & Wood and Cravath,
Swaine & Moore. He is a graduate of the Fordham University School of Law and Georgetown University's School of
Foreign Service.
Bill Mariano
Bill Mariano is an attorney and director of electronic discovery at Applied Discovery. In this role, Mr. Mariano works
in the New York and Washington, D.C., offices with Fortune 500 corporations and Am Law 100 law firms
throughout the northeastern United States to help his clients improve their strategies for handling complex
discovery matters while creating greater cost and control efficiencies throughout the discovery process.
Before joining Applied Discovery, Mr. Mariano served as a senior internet business development consultant for a
Fortune 100 communications company. In this role, he coordinated strategic relationships with other Fortune 100
companies and spoke on the emerging internet medium as a vehicle to advance a company’s message to a global
market. Previously, Mr. Mariano practiced law for over five years with a focus on securities litigation and
investigations. As part of his practice, he gained experience managing document reviews on Concordance and
various Web-based solutions.
Mr. Mariano earned his J.D. cum laude from Seton Hall University School of Law and a B.A. in business with honors
from the State University of New York at Oneonta.
Mr. Mariano works as a guest trial advocacy instructor at Seton Hall University, where he teaches students how to
leverage technology in practice. He is also a frequent presenter and author on a variety of topics, including how to
develop an electronic discovery action plan, the FRCP amendments and dealing with electronic discovery, emerging
case law in electronic discovery and leveraging technology to reduce discovery costs.
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