Mario Massari (Milan, Italy) is Full Professor of Corporate Finance, Head of the Finance Department, Director of the Institute of Accounting, Finance and Control from 2003 to 2007 at Bocconi University. Formerly full professor of Financial Management at Università Cattolica di Milano and Ca' Foscari of Venice.

Gianfranco Gianfrate (Milan, Italy) is Assistant Professor of Finance, Bocconi University. He is Visiting Scholar, Boston College (2003) and Cass Business School (2006), Visiting Fellow, Harvard University (2007-2008) and Deputy Director, Clefin-Finance MSc.

Laura Zanetti (Milan, Italy) is Associate Professor of Finance at Bocconi and Visiting Professor at the HKUST Business School.

Preface vii

Acknowledgments ix

1 Bank Business Models 1

1.1 Economics of banking 1

1.2 Commercial banks 3

1.3 Investment banks 7

2 Financial Statements Analysis for Banks 15

2.1 Balance sheet 15

2.2 The US GAAP for banks 44

2.3 Profit & loss statement 49

2.4 Major differences between IAS/IFRS and US GAAP 51

2.5 Example of IAS/IFRS application 54

3 The Regulatory Capital for Banks 61

3.1 Regulatory capital requirements 61

3.2 Basel II 68

3.3 The reform of Basel III 73

3.4 Managing the regulatory capital 78

4 Assessing and Preparing the Business Plan for a Bank 81

4.1 Status quo analysis 82

4.2 Internal consistency 85

4.3 External consistency 92

4.4 The forecasting model of a bank 96

5 Bank Valuation 105

5.1 Why bank valuation is different 105

5.2 Discounted returns model 108

5.3 Relative valuation 123

5.4 Asset/liability-based valuation 137

5.5 The sum of the parts framework 143

5.6 Bank valuation in M&A 144

5.7 The valuation of Wells Bank 148

6 Insurance Business Models and Financial Statements 159

6.1 The business model of insurance companies 159

6.2 Segmentation by products 160

6.3 Distribution channels 162

6.4 Insurance balance sheet under US GAAP 162

6.5 Insurance contracts under IAS/IFRS 167

6.6 Case study 172

7 Regulatory Capital for Insurance Companies 177

7.1 Insurance industry regulation in the US 177

7.2 Current US system 178

7.3 Solvency II - European-based regulation 181

7.4 Main differences between solvency II and US regulation 190

8 Assessing the Business Plan for an Insurance Company 193

8.1 Status quo analysis 193

8.2 Internal consistency 195

8.3 External consistency 200

8.4 The forecasting model 204

9 Insurance Companies Valuation 209

9.1 Appraisal value 209

9.2 Relative valuation 215

9.3 The case of "general insurance" 216

10 The Valuation of Other Financial Companies 227

10.1 The valuation of finance companies 227

10.2 The valuation of funds 229

References 233

Index 235