Two years ago, Elon Musk came in and spent $44 billion on the social media network, only to quickly destroy it and turn it into the nightmarish hellscape we’ve always said we would be (little did we know how bad it would get). Now, not only is it a useless, toxic space, but the company’s value has plummeted. Advertising revenues have fallen by about 70% and the actual value of the company has been slashed by more than half (he bought it for $44 billion, but the company itself said it was worth $19 billion last year).
But the deal is also wreaking havoc on the banking system, according to The Wall Street Journal, which called Twitter’s deal “the worst banking takeover since the financial crisis.”
How? In a nutshell, Elon Musk bought Twitter for $44 billion. To finance the deal, Musk borrowed $13 billion from seven banks, including Morgan Stanley and Bank of America. Usually, when banks lend for such a big deal, they immediately sell the debt to other investors to get it off their books and make money from the transaction fees. But in this case, Twitter’s financial performance was so dire that the banks were unable to sell the debt. This means that the loans still remain on the banks’ balance sheets, which is called a “hung” situation. This situation is the worst “hung” deal for banks since the 2008-2009 financial crisis. Almost two years later, the banks still can’t sell the debt without taking a big loss, which is causing problems for the banks. Not only are profits declining due to write-downs, but it’s also making it harder for banks to lend, lowering their credit ratings and in some cases even cutting bankers’ salaries (I know, I’m sorry!).
The banks are in a bind because they want to stay on good terms with Musk, since he also owns SpaceX and Tesla. But they’ve been hurt by this deal and can’t do anything about it. Meanwhile, Musk has to pay $1.5 billion in interest every year, so he’s ultimately going to have to sacrifice something. My guess is that Musk is rooting for Trump for a variety of political reasons, but also because he thinks the chaos of a Trump presidency might be good for Twitter. A Kamala Harris presidency would mean less chaos and disorder, but it would mean the end of Twitter. That alone would be a credit to Harris.
For aesthetic reasons, we used a photo of Lee Pace in our header image instead of Elon Musk. Apologies to Lee Pace.
Source: WSJ