1. The Role of Employee Stock Ownership Plans in the Restructuring and Privatization of State-Owned Financial Institutions David M. Binns www.beysterinstitute.com Ronald J. Gilbert www.esopservices.com

2. Introduction Extensive international experience Over the past 15 years, over 20 different countries have implemented some form of employee ownership

3. The Rationale for the Use of ESOPs in Privatization and Financial Sector Reform Flexibility Macroeconomic policy and corporate reorganization “Mixed” Privatizations are likely to predominate Traditional boards of directors and management Financial institutions are in a unique position

4. Practical Considerations in Implementing ESOPs in Financial Institutions A technique for corporate finance “Non-leveraged” ESOP “Leveraged” ESOP Credit of the Corporation Access to capital credit

5. A Standard Leveraged ESOP

6. Key Issues to Consider When Valuing a Financial Institution Quality of the financial institution’s earning assets Asset/Liability management practices Management of non-interest or overhead expenses

7. Creating New Capital for Financial Institutions Growth of Annual $100,000 ESOP Contribution Over 10 Years Plan RetainedNew Capital Total Leveraged1.25% DepositEarningsfrom Profit New CapitalAssetsAfter-Tax ROA Year 1$100,000$42,000$ -$42,000$630,000$7,875 Year 2100,00042,0007,87591,8751,378,12517,226 Year 3100,00042,00017,226151,1012,266,52328,331 Year 4100.00042,00028,331221,4333,321,49641,518 Year 5100,00042,00041,518304,9514,574,27757,178 Year 6100,00042,00057,178404,1306,061,95475,774 Year 7100,00042,00075,774521,9047,828,57097,857 Year 8100,00042.00097,857661,7619,926,427124,080 Year 9100.00042,000124,080827,8422,417,632155,220 Year10100,00042,000155,2201,025,06215,375,938192,199 TOTAL$1 million$420,000$605,062 - -$797,261

8. Impediments to ESOP Implementation Distressed Situations Lack of Credit Availability Ideological Opposition

9. Impediments to ESOP Implementation - continued Inexperienced Management Lack of Public Markets Lack of Outside Investors

10. Impediments to ESOP Implementation - continued “Cut Throat” Competition Management as the “Competition” to the ESOP Lack of Legal and Regulatory Protections

11. Case Study #1: Royal Bank of Trinidad and Tobago Case Study #2: Phelps County Bank Case Study #3: Virginia Community Bankshares, Inc.

12. Case Study #4: National Commercial Bank of Jamaica Case Study #5: Allied Bank of Pakistan Limited Case Study #6: K-REP Bank of Kenya

13. ESOPs in Financial Institutions in Korea

14. Facilitating the Use of ESOPs in Bank Restructuring and Privatization Transactions Contemplates an IPO in the relatively near future Expects to remain unlisted for a period of several years Contemplates selling shares to strategic investor

15. Facilitating the Use of ESOPs in Bank Restructuring and Privatization Transactions - continued Employees will be the only shareholder in addition to the government Privatization will result in total divestiture or full privatization Management buyout is a feasible option

16. Conclusion

17. Recommended Operational Guidelines for ESOPs

18. An Overview of ESOP Incentives