In The Mood or Loans

Societe Generale

Research

124 Pages

Societe Generale explores how direct corporate lending could emerge as a meaningful asset class as European banking regulation reshapes capital markets. It argues that bank disintermediation may accelerate faster in Europe than in the US, creating opportunities across five loan categories while offering investors higher yields, stronger recovery rates, and longer duration than many traditional fixed income assets.

Key Takeaways

Europe's Financing Shift: European companies still receive about 80% of financing from banks, but Basel III could accelerate a move toward market based lending.
Yield Premium Opportunity: Corporate loans may provide an additional 40bp to 150bp liquidity premium over comparable bonds while maintaining relatively high recovery rates.
Institutional Allocation Gap: Japanese insurers allocate roughly 25% of assets to illiquid loans, compared with only 4% to 8% among European insurers, highlighting potential room for growth.

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