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Art of treating Claw Back-to-Robin Trehan

a copy of the proceedings of the clawback provision. Clawback provision will make the existing shareholders of the bank responsible for losses the existing loan portfolio, which will reduce the existing value of the risk on loans and leases from the effective date for the investment of fresh capital. By the closing date of the new investors are coming percentage of ownership based on new money invested and the tangible book value of the bank.

One of the important factors to keep in mind is to make sure that the new bank capital infusion is expected to become well capitalized by all regulatory measures. In the event that regulators can not ask more for the infusion of capital, which further complicate the property.

well capitalized

well capitalized

adequately capitalized

Tier I Leverage

Tier I / Total average assets 5.00%

5.00% Tier I Risk Based

Tier I / RBA total

8.00% 6.00%

Total Risk Based

(Tier I + ALLL) / total RBA

12.00% 10.00%

For example, if the bank's tangible book value on the day of investment of $ 3 million and allowance for credit losses of $ 3M and new groups of investors put in $ 6 M. The investor would receive about 67% of the total capital stock authorized, issued and outstanding of the bank.

Assuming that the bank's ALLL M $ 3 on the actual date of closing or the date of new investment. A claw back provision activities will take the losses attributable to the existing loan portfolio of the bank after the date of the new capital infusion reduced compared to the value in the near future. The new investor in these circumstances will receive additional shares in the bank to the extent that they inject additional capital to stock the reserve. The theory is basically that existing shareholders should receive value only to the extent of the value at the date of infusion of new capital and to the extent that changes its value due to deterioration of the credit portfolio, that the burden is shared by the existing shareholders, in contrast with new investors.

new investor should also keep in mind what will be the breakeven point for the bank in terms of size of assets and where the economy is going. A business plan five years should also raise this point and give some good idea. Some of the criticality of the business plan, keeping in view the claw back provision and ALLL should also include plans for

· Heritage - How much capital will require additional resources to support existing activities and the amount of capital will be needed for future growth? What are the revenue projections for next year? What type of loan is the percentage mix bank wants to maintain in terms of commercial, consumer and other loans? In addition, to keep in mind, as the current non-competence will perform and if there is any possibility of their return-bearing assets, in some form, in what period of time.

· mix-deposit liabilities, demand, MMDA, savings, CD core, with the mediation, the public funds. What should be the right mix?

· Capital - 12%. The more the better

· Staffing -loans, deposits, mutual respect, I / T, again in the room

· Technology latest e-business and m-commerce solutions

· Rami branched than you planned and required capital.

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