The Wall Street Journal (WSJ) reported on the 20th local time that Tesla CEO Elon Musk’s funds borrowed from banks to acquire the former Twitter are becoming the worst loans since the 2008 financial crisis.
According to reports, when CEO Musk took over Twitter in October 2022, the loans that banks lent were $13 billion (17.3225 trillion won), which has been almost two years since the acquisition, but banks have not been able to recover their loans.
The loans offered to Twitter’s acquisition became one of the longest non-recoverable acquisition-trading loans since the 2008-2009 financial crisis, according to market research firm PitchBook LCD.
The bank lends the funds needed when one company takes over another, creates bonds containing the rights to that money, and sells them to other investors to recover the money.
Even during the financial crisis, many loan bonds were not sold, but most of the banks recovered their loans or processed losses within about a year due to bankruptcy of companies and others.
One loan, worth $20 billion more than Twitter in 2007, was a problem for the bank when the company went bankrupt in a year.
“The Twitter acquisition is not only the biggest dollar deal since the 2008 financial crisis, but one of the biggest deals ever,” said Stephen Kaplan, a professor of finance at the University of Chicago. “The loan has been weighing on banks for much longer than other transactions.”
Seven banks, including Morgan Stanley, Bank of America and Barclays, lent to Musk’s holding company to acquire Twitter, and JPMorgan and Goldman Sachs did not participate.
However, the depreciation of X, which Musk changed its name on Twitter after taking over, has made it difficult for banks to sell the bonds without losing money.
Musk bought Twitter for $44 billion at the time, which X said last year was worth about $19 billion, less than half of what it was when Musk took over.
X has reportedly seen an increase in users, but since Musk’s acquisition, it has struggled to generate revenue due to mass layoffs of two-thirds of its employees and advertiser churns due to owner risks.
As a result, the inability to recover loans is a big burden to banks.
Some banks have reduced the value of these loans by hundreds of millions of dollars, leading to a significant drop in profits.
Some banks have also scaled back funds for other merger and acquisition deals due to the failure to return Twitter loans.
Also, some investment banks have changed their rankings due to the loans provided for the Twitter acquisition.
In 2021 and 2022, before Musk’s acquisition of Twitter, Bank of America and Morgan Stanley topped the U.S. financial investment bank rankings, with JPMorgan and Goldman Sachs topping the list in 2023 and 2024, which did not finance the Twitter deal.
Barclays has cut some of its employees’ compensation.
“There were several contracts that hurt earnings, but X was by far the biggest,” the source said.
Banks discussed plans to restructure loans earlier this year, including X repaid some of the loans and reduced bank rates, but X did not follow the plan, the sources said.
“However, the banks hope to continue to do business with Musk, one of the world’s richest men, from Tesla to Neuralink and xAI,” the WSJ said. “The banks see the possibility of an initial public offering of SpaceX or Starlink satellite business as a revenue-generating opportunity that they don’t want to miss.”
JENNIFER KIM
US ASIA JOURNAL
