Bluechip banks to lose billions on Musk-linked debts – WSJ

Morgan Stanley, Bank of America, Barclays, and others lent large sums to the businessman to acquire Twitter.

The large banks that financed Elon Musk’s $44 billion purchase of Twitter (now renamed X) are still struggling to contain the damage to their balance sheets, the Wall Street Journal reported this week.

According to the report, which cites people familiar with the matter, seven Wall Street giants, including Morgan Stanley, Bank of America, and Barclays, lent Musk around $13 billion to buy the social media platform a year ago. Now they are expected to take a hit of at least 15%, or roughly $2 billion, when they sell the debt.

Musk’s debt package reportedly included $6.5 billion in term loans, $6 billion split equally between secured and unsecured bonds, and a $500 million revolving line of credit.

The report indicated that under normal circumstances the financial institutions would have unloaded the debt soon after the transaction. However, sharply falling investor appetite for X forced the banks to hold the debt on their own balance sheets at a discounted value.

The banks have recently begun preparations to try to unload at least some of it, the WSJ’s sources said. According to the report, the banks suffered the same situation during the global financial crisis in 2007-08, when investors lost confidence in the financial system.

The WSJ pointed out that X’s debt is now one of the largest and longest-held “hung” deals, which typically result in banks losing out after financing unsuccessful acquisitions.

“The X deal should have been a fee bonanza for the banks, who stood to earn tens of millions of dollars on the debt. Instead, their inability to resell it has been an albatross on their lending businesses and prompted questions from their own investors,” the WSJ wrote.

It noted that the banks will be facing more scrutiny from regulators the longer they hold onto the debt.