The inevitable disintermediation of corporate financing in the euro zone

We believe that the disintermediation of corporate financing in the euro zone is inevitable for two compounding reasons: The weakening of banks in the euro zone (low profitability and return on equity) is leading them to contract and to reduce their risk-taking. They will therefore have to reduce their role in corporate financing; Institutional investors in the euro zone (insurers, pension funds, investment funds), which face very low yields on risk-free bonds, will increase their demand for riskier assets (equities, High Yield bonds). This increase in demand will fuel an increase in the supply of these assets, leading also to a greater role for financial markets and a reduced one for banks in corporate financing.