Musk's loan to buy Twitter was the worst deal for banks since the financial crisis - WSJ

The $13 billion that Elon Musk borrowed to buy Twitter has turned into the worst merger and financing deal for banks since the 2008-2009 financial crisis, The Wall Street Journal reports, UNN writes.

Details

The seven banks involved in the deal, including Morgan Stanley and Bank of America, provided money to the billionaire's holding company to privatize the social media platform, now called X, in October 2022. Banks that provide takeover loans usually quickly sell the debt to other investors to get it off their balance sheets, earning commissions.

However, according to the publication, the loans worth about $13 billion have remained "hung up" for almost two years, generating interest payments but weighing on the banks' balance sheets. The debt has not been sold in part because the value of the underlying asset has plummeted due to its weak performance, MarketWatch notes .

Citing Pitchbook data, the newspaper said that Twitter is considered the biggest deal to have stalled since the turmoil that followed the collapse of Lehman Brothers some 16 years ago, and one of the biggest stalled deals of all time, as reported by MarketWatch.

It has also reportedly been hanging around on banks' balance sheets longer than any other NPL since the 2008-2009 financial crisis, about 20 months and counting. In contrast, most of the NPLs from the financial crisis were sold within about a year.

Citing people familiar with the deal, the newspaper reported that the banks have accumulated losses on the paper totaling hundreds of millions of dollars each. This, in turn, has forced the banks to reduce the capital available to finance other deals, MarketWatch notes.

Addendum

In October 2022, Elon Musk closed the deal to acquire the social network Twitter for $44 billion and took over the company.