With Societe Generale raising capital at discount, what is value of US banks?
Posted by: in Latest NewsFiled under: Forecasts, Deals, Industry, Citigroup Inc. (C), Recession
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 amazing 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 sales of shares at a 39% discount raises a question about the valuation of US banks should they be put in a postilion to raise more money due to bigger subprime write-offs or write-downs in their LBO portfolios. American-based money center banks might 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 which is down from a 52-week high of $55.55.
Douglas A. McIntyre is an editor at 247wallst.com.
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