Elon Musk likes to claim that he bought Twitter to protect free expression. If the seven banks that provided him with huge amounts of funding had listened more to him and understood that his motives were not purely business-driven, they might have reconsidered lending to him. Instead, Musk and his people are left with the worst loans since the 2008 global financial crisis.
In a deal that closed in October 2022, Musk acquired Twitter Inc. for $44 billion, which has since changed its name to X. Last year, the company announced its value had fallen to $19 billion, a more than 70% drop due to its deteriorating financial situation. X’s poor performance and declining value have meant that banks that lent Musk about $13 billion have been unable to remove the debt from their balance sheets without taking heavy losses, estimated to total about $2 billion.
Banks typically aim to sell loans off their balance sheets quickly, but those they can’t sell are classified as “outstanding debt.” The loans provided to Musk have been held by those banks for 22 months, the longest period for any loan linked to a similar deal based on available data since the global financial crisis, according to data from research firm PitchBook reported by The Wall Street Journal.
Lending banks include Bank of America, Morgan Stanley, Barclays, Japan’s MUFG and Mizuho, France’s BNP Paribas and Société Générale. In addition, several major venture capital firms, including Andreessen Horowitz, Sequoia Capital, and Oracle founder Larry Ellison, also participated in the loan to Musk. The banks face the risk of not being able to collect on their debts if X were to declare bankruptcy, a scenario Musk has warned about on multiple occasions. But the banks continue to collect large amounts of interest, and Musk has said X is paying about $1.5 billion in interest per year.
For banks, the main damage will be reputational damage: As long as they remain in debt, their standing as investment bankers will decline, especially in league tables that are used as a key marketing tool for large clients.
Apple to stop advertising on X
In the first few months of X’s operation under Musk’s leadership, many advertisers, including major companies such as Apple, decided to stop advertising on the platform. The main reason was Musk’s minimal content moderation approach to X users. Advertisers were concerned that their brands would appear next to posts promoting hate speech and fake news. Musk showed little interest in these advertisers’ concerns, even making disparaging remarks about advertisers at a conference hosted by the New York Times.
That approach hasn’t helped it win back advertisers. In the United States, its largest market, X recorded revenue of $114 million in the second quarter, according to a New York Times report. The figures represent a 25% drop compared to the first quarter, a 53% drop compared to the same quarter in 2023, and a steep 84% drop compared to the last quarter the company was publicly traded before Musk took it private.
Trump appoints Musk as adviser
As a last resort, Musk has in recent weeks decided to sue advertisers who don’t buy more ads on the platform, claiming they are orchestrating an “ad boycott,” but these lawsuits are unlikely to turn around X’s deteriorating performance anytime soon.
Musk’s personal wealth is estimated at more than $230 billion, making him the richest person in the world, but he cannot solve Mr. X’s problems because a large part of his wealth is tied up in Tesla shares. Tesla is a publicly traded company, and selling a large amount of shares to obtain cash would have a negative impact on the stock price. This has happened several times in the past two years due to Musk’s frequent selling. For example, he sold $7.5 billion worth of Tesla shares at the end of 2022. Since the beginning of this year, the stock price has fallen by about 27%.
As stocks tumbled, Republican presidential candidate Donald Trump, who is backed by the Tesla founder, said this week that he would consider eliminating the $7,500 tax credit for electric car purchases if he wins the election. At the same time, Trump suggested he might consider appointing Musk as a White House adviser, calling him “a great guy.”