VCP proposal for bankers

[Skip to the end]

Here’s my proposal for banks that are presumably capital constrained:

Offer borrowers a package deal:

The borrower agrees to buy new bank VCP (variably convertible preferred) stock equal to, say, 10% of their proposed borrowings. This creates ‘balance sheet’ for the bank which then has the new ‘room’ to make the loan and then some. (Banks generally have 8% target capital ratios.)

The VCP functions as a ‘first loss piece’ for the bank as well.

Terms of the VCP might include an interest rate equal to the loan rate, and a variable conversion ratio designed to give the borrower all his funds back if he doesn’t default.

The VCP non-dilutive to the holders of common shares.

This VCP proposal can free up and create new balance sheet and raise capital as it services borrowing desires.

Feel free to forward this to everyone you know in banking.