Credit Musk on Twitter: Worst deal for banks since 2008 crisis

Elon Musk s disastrous deal How a Twitter loan became a headache for banks

Elon Musk's purchase of Twitter was the worst deal for banks since the 2008 financial crisis -2009, leading to significant losses and difficulties in selling debt.

Financial failure X

Bad deal of the century

The acquisition of the social network Twitter (now X) by Elon Musk turned into a real nightmare for creditor banks. Seven financial giants, including Morgan Stanley and Bank of America, provided funds to the billionaire's holding company to complete the deal in October 2022. However, contrary to usual practice, banks were unable to resell the debt to investors without significant losses, which led to stagnation of loans on their balance sheets.

Consequences for the banking sector

This situation dealt a serious blow to banks' loan portfolios. In some cases, it has even impacted compensation in M&A departments. The value of Musk's loans plummeted after the $44 billion deal was completed. Analysis shows that X's poor performance made this operation a historical failure.

Record debt freeze

Twitter loans have been stuck in limbo longer than any similar unsold stock, according to PitchBook LCD deal since the financial crisis. Back then, banks could usually sell or write off most of the outstanding debt within a year of issuing loans. However, in the case of X, the situation turned out to be much more complicated.

Banks' motives

Despite the obvious risks, the banks agreed to a deal that even Musk himself considered overvalued. The main reason was the prospect of cooperation with the richest man on the planet. Musk and other investors put in about $30 billion, which should have provided some cushion for banks.

Impact on ratings and compensation

The X loans, along with other stalled deals, temporarily helped some banks improve their positions in investment banking ratings. However, in 2023 and 2024, leadership passed to JPMorgan and Goldman Sachs, which did not participate in financing the Twitter deal. The situation also had a negative impact on investment bankers' annual bonuses, leading to exodus from some institutions.

Outlook and Implications

Almost two years after the acquisition, Business X is still trying to climb out of the financial hole. The company's value fell by more than half, to about $19 billion. Despite some growth in platform usage, there is no sign of a significant recovery in advertising revenue. Musk's public statements also make debt difficult to sell.

Banks were unable to resell X's loans even though their value was significantly reduced. This reduces the profits of financial institutions and attracts increased attention from regulators. Some banks discussed the possibility of restructuring the deal, but the plan was not implemented.

Despite all the difficulties, many banks are still interested in cooperation with Musk and his companies, especially in light of a possible IPO of SpaceX or Starlink.

Glossary

X is the new name of the social network Twitter after its acquisition by Elon Musk
Morgan Stanley - one of the largest investment banks in the USA
Bank of America - the second largest bank in the USA
SpaceX is an American aerospace company founded by Elon Musk
Starlink is a satellite network developed by SpaceX

Answers to questions

What consequences did the Twitter acquisition deal have for banks?

The deal turned out to be extremely unprofitable for the banks. They were unable to resell the debt without significant losses due to X's weak financial performance. This led to write-offs in the banks' loan books and even impacted compensation in the merger departments of some banks.

Why did banks agree to finance the transaction, despite the high risks?

The main reason was the banks' desire to cooperate with the richest man in the world. The opportunity to serve Elon Musk and his companies seemed too attractive to pass up, despite Musk himself admitting the deal was overpriced.

How has the value of X (Twitter) changed since Musk's acquisition?

The company's value has decreased significantly. Last year it said its value had fallen by more than half, to about $19 billion. Despite increased usage of the platform recently, there is no sign of a significant recovery in advertising revenue.

What attempts have been made to improve X's debt situation?

Banks discussed a restructuring plan under which Musk could pay off part of the debt and the banks would reduce interest payments. However, X did not implement this plan. Banks were also unable to resell the debt, even after reducing its value by hundreds of millions of dollars.

Why do banks continue to cooperate with Musk despite problems with X?

Banks are still interested in working with six of Musk's companies. They are especially attracted to the opportunity to participate in a potential SpaceX or Starlink IPO, which could generate significant commissions. These prospects are so tempting that banks are willing to suffer losses from a deal with X.

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Discussion of the topic – Elon Musk's disastrous deal: How a Twitter loan became a headache for banks

2024-08-21

Elon Musk's $13 billion loan to buy Twitter has turned into the most problematic financing deal for banks since the 2008-2009 crisis, creating serious difficulties for lenders.

Leonid Vlasov
Leonid Vlasov Copywriter Elbuz

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