Editor's letter

To Societe Generale's detriment, the credit crisis has sent investors scuttling back to safe havens and making flights to quality

Just when you thought it might be safe to go back into the financial markets, Societe Generale (SG) revealed a new way to lose money. But SG can count itself lucky. The cost of the rogue-trader losses at the bank is dwarfed by the gigantic writedowns most investment banks have suffered from the subprime crisis.

Unfortunately for the French bank, this is where its luck runs out. The questions most frequently asked as Structured Products went to press revolved around who might buy the ailing giant, and the state of what they might acquire as part of the deal.

The obvious candidate for a friendly takeover is BNP Paribas. The bank is known to have considered the possibility in the past. Will the French government sanction such a drastic consolidation of its banking industry, especially after making such a mess of its previous amalgamation of state banks? And if not BNP Paribas, who would buy SG?

While SG's share price continues to fluctuate, although not collapse, the most likely candidate seems to be Barclays, largely on the basis that it lost out on buying ABN Amro. All seems feasible, but can you imagine a British bank being allowed to buy one of France's most prestigious and prominent institutions? Xenophobia aside, the French government's principal concern would surely be the damage this could inflict on the country's financial markets. It would presumably mean an end to Paris' ambition to be a major world financial centre.

What do distributors make of it all? Those contacted by Structured Products were generally supportive, but said they had reservations about doing business with SG in the short term. More interesting was the analysis of what is likely to happen at the next meeting at which SG pitches for business. To the bank's detriment, the credit crisis has sent investors scuttling back to safe havens and making flights to quality. On the basis that distributors have now become more interested in credit quality and less concerned about pricing, the tarnishing of SG's previously excellent reputation could well be long-lasting.

- Richard Jory. [e-mail]. [phone].