The Valuation of Financial Companies: Tools and Techniques to Value Banks, Insurance Companies, and Other Financial Institutions -- Contents -- Preface -- Acknowledgments -- 1 Bank Business Models -- 1.1 Economics of Banking -- 1.2 Commercial Banks -- 1.2.1 Structure of the Industry in the US -- 1.2.2 Overview of the US Regulation -- 1.2.3 Commercial Banks Balance Sheets -- 1.3 Investment Banks -- 1.3.1 Structure of the US Banking Industry -- 1.3.2 Typical Balance Sheet for an Investment Bank -- 1.3.3 The Banking Industry outside the US -- 2 Financial Statements Analysis for Banks -- 2.1 Balance Sheet -- 2.1.1 Assets -- 2.1.2 Investment Property -- 2.1.3 Intangibles -- 2.1.4 Research and Development -- 2.1.5 Goodwill -- 2.1.6 Securities -- 2.1.7 Equity Stakes -- 2.1.8 Loans and Receivables -- 2.1.9 Impairment Test -- 2.1.10 Financial Liabilities -- 2.1.11 Hedging -- 2.1.12 De-recognition of Financial Assets and Liabilities -- 2.2 The US GAAP for Banks -- 2.2.1 Reversal of Impairment -- 2.2.2 Transfer among Different Categories -- 2.3 Profit & Loss Statement -- 2.4 Major Differences between IASIFRS and US GAAP -- 2.5 Example of IASIFRS Application -- 3 The Regulatory Capital for Banks -- 3.1 Regulatory Capital Requirements -- 3.1.1 Definition of Capital According to Basel I and II -- 3.1.2 The Risk-Weighted Assets -- 3.2 Basel II -- 3.2.1 Does Basel II Work? -- 3.3 The Reform of Basel III -- 3.3.1 New Definition of Capital -- 3.3.2 Change in RWA Computation -- 3.3.3 New Coefficients -- 3.3.4 Leverage Ratio -- 3.3.5 Liquidity Ratios -- 3.4 Managing the Regulatory Capital -- 4 Assessing and Preparing the Business Plan for a Bank -- 4.1 STATUS QUO Analysis -- 4.1.1 Asset Quality -- 4.1.2 Toxic and Illiquid Assets -- 4.1.3 Goodwill -- 4.1.4 Capitalization -- 4.2 Internal Consistency -- 4.2.1 Historical versus Projected Performance.

4.2.2 ROE Framework -- 4.2.3 P&L and Balance Sheet Drivers -- 4.2.4 P&L versus Balance Sheet -- 4.2.5 Asset Side versus Liability Side -- 4.2.6 Financial versus Operating Forecasts -- 4.3 External Consistency -- 4.3.1 Macroeconomic Outlook -- 4.3.2 Competitive Dynamics -- 4.3.3 Business Plan versus Market Consensus -- 4.4 The Forecasting Model of a Bank -- 4.4.1 Balance Sheet -- 4.4.2 P&L -- 4.4.3 Checking Forecasts -- 5 Bank Valuation -- 5.1 Why Bank Valuation is Different -- 5.2 Discounted Returns Model -- 5.2.1 The Cost of Capital for Financial Institutions -- 5.2.2 The Dividend Discount Model -- 5.2.3 The Cash Flow to Equity Model -- 5.2.4 The Excess Return Model -- 5.3 Relative Valuation -- 5.3.1 Market Multiples -- 5.3.2 Deal Multiples -- 5.3.3 Multiples from Fundamentals -- 5.3.4 Value Maps and Other Regressions -- 5.4 AssetLiability-Based Valuation -- 5.5 The Sum Of The Parts Framework -- 5.6 Bank Valuation in M&A -- 5.7 The Valuation of Wells Bank -- 6 Insurance Business Models and Financial Statements -- 6.1 The Business Model of Insurance Companies -- 6.2 Segmentation by Products -- 6.2.1 Life and Health -- 6.2.2 Property and Casualty -- 6.2.3 Reinsurance -- 6.3 Distribution Channels -- 6.4 Insurance Balance Sheet under US GAAP -- 6.4.1 Reserves and Separate Accounts -- 6.4.2 Deferred Policy Acquisition Costs -- 6.5 Insurance Contracts under IASIFRS -- 6.5.1 Recognition of Insurance Contracts -- 6.5.2 Adequacy of Insurance Liabilities -- 6.5.3 Unbundling -- 6.5.4 Reinsurance -- 6.5.5 Discretionary Participation Features -- 6.6 Case Study -- 7 Regulatory Capital for Insurance Companies -- 7.1 Insurance Industry Regulation in the US -- 7.2 Current US System -- 7.2.1 Risk-Based Capital -- 7.3 Solvency II - European-Based Regulation -- 7.3.1 Valuation of Assets and Liabilities -- 7.3.2 Best Estimate and Risk Margin -- 7.3.3 Own Funds.

7.3.4 SCR and MCR -- 7.4 Main Differences between Solvency II and US Regulation -- 8 Assessing the Business Plan for an Insurance Company -- 8.1 STATUS QUO Analysis -- 8.1.1 Asset Valuation -- 8.1.2 Reserve Adequacy -- 8.1.3 Solvency -- 8.2 Internal Consistency -- 8.2.1 Historical versus Projected Performance -- 8.2.2 P&L versus Balance Sheet -- 8.2.3 Asset Side versus Liability Side -- 8.2.4 Financial versus Operating Forecasts -- 8.3 External consistency -- 8.3.1 Macroeconomic Outlook -- 8.3.2 Competitive Dynamics -- 8.3.3 Business Plan versus Market Consensus -- 8.4 The Forecasting Model -- 8.4.1 Non-Life Business -- 8.4.2 Life -- 8.4.3 Checking Forecasts -- 9 Insurance Companies Valuation -- 9.1 Appraisal Value -- 9.1.1 The Value-In-Force -- 9.1.2 The ANAV -- 9.1.3 The Business Goodwill -- 9.2 Relative Valuation -- 9.3 The Case of "General Insurance" -- 9.3.1 Step 1 -- 9.3.2 Step 2 -- 10 The Valuation of Other Financial Companies -- 10.1 The Valuation of Finance Companies -- 10.2 The Valuation of Funds -- References -- Index.