With Societe Generale raising capital at discount, what is value of US banks?

Societe Generale, in trouble because of losses suffered due to transactions by one trader, will raise almost $8 billion. The rights offering is at an astonishing 39% discount to the price as of the Friday close.

According to The Wall Street Journal, "the bank also said write-downs linked to fallout from the U.S. subprime-debt crisis would be €2.6 billion, compared with the €2.05 billion announced in January." In other words, it is in deep distress.

A sale of shares at a 39% discount raises a question about the valuation of US banks, should they be put in a position to raise more money due to larger subprime write-offs or write-downs in their LBO portfolios. American money center banks may have to take more losses in the early quarters of this year as a recession further devalues some of their assets.

To put it in stark relief, a rights offering at Citigroup (NYSE:C) at a 39% discount would price shares at $16 compared to their current $26 level which is down from a 52-week high of $55.55.

Douglas A. McIntyre is an editor at 247wallst.com.