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Elon Musk's purchase of Twitter, completed in October 2022, turned into a financial nightmare for large banks, which are now facing significant losses: With billion-dollar loans still “hanging”, the transaction is compared to the worst moments of the financial crisis in 2008-2009.
The acquisition of Twitter by Elon Musk, in the amount of US $ 44 billion, was already seen as a risky move. However, what few predicted was that this operation would become one of the biggest financial nightmares of recent years for the banks involved. Seven major financial institutions, including Morgan Stanley and Bank of America, committed to loans totaling US $ 13 billion to help Musk complete the deal. However, these banks now face monumental difficulties in selling the associated debt, accumulating losses that are seriously affecting their operations and reputations, according to infomoney.
Billionaire “hanging” loan: banks’ nightmare
In the world of finance, banks that offer large loans for acquisitions, such as the purchase of Twitter, generally seek to quickly resell these debts to other investors. This frees up your balance sheets and, of course, generates profit from the fees charged in the process. However, this traditional strategy proved to be a real shot in the foot when it comes to Twitter under the management of Elon Musk.
Since Musk took control, the platform, now renamed “X“, saw its financial performance plummet, making it almost impossible to find buyers interested in the debt. As a result, these loans remain on the institutions' balance sheets, or, as the market says, they are “hanging“. And to make matters worse, banks were forced to reprice these debts downwards, which negatively impacted their balance sheets.
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Even though they receive interest payments, some of these banks are so desperate to get rid of this hot potato that they have reduced the value of the debt by hundreds of millions of dollars.. This situation, in addition to causing a monumental headache for the executives of these institutions, also generated regulatory scrutiny, damaging the banks' position in financial rankings.
A crisis comparable to that of 2008: when the past comes back to haunt
The banks' Twitter debt situation has dragged on longer than any other similar deal since 2008-2009 financial crisis, according to data from PitchBook LCD. At the time, banks were able to sell or write off most of their debt in about a year. But, for the ex-Twitter, this exit does not seem to be close.
The platform, now under the name X, continues to suffer from the mass departure of advertisers and the impact of high interest rates, making debt a truly never-ending headache for banks. Experts point out that this is one of the biggest cases of debt hanging since the global financial crisis, highlighting how even financial giants can be surprised by risky market moves.
Twitter under Musk's management: from social network to “X”
Since Elon Musk took control of Twitter, the platform has undergone a series of drastic changes — not all of them well received. The company's value, once estimated at US$44 billion, plummeted to US$19 billion in 2023, and more recently was valued at around US$12,5 billion. This significant drop reflects the operational changes promoted by Musk, which impacted both user perception and investor confidence.
Among the most notable controversies are the releasing controversial content and reducing moderation on the platform, which led to the flight of advertisers. Without advertising revenue, which has always been a pillar of Twitter's economy, the company's financial situation worsened, generating a spiral of problems that directly affects the banks involved in the transaction.
The future of X and the banks involved
The future of platform X and the banks that financed the acquisition is still uncertain. With the continued devaluation of the company and the lack of people interested in taking on the debt, financial institutions may face long-term consequences. For Elon Musk, the purchase of Twitter may have been a bold move, but for banks, it is proving to be a real financial trap.
This episode serves as a reminder that, in the business world, even the biggest players can be surprised. And while Elon Musk tries to reinvent Twitter under the X brand, the banks involved continue to struggle to get rid of a debt that, it seems, will remain “hanging” for a long time.
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