Banks Realize Backing Elon’s Twitter Buyout Is Close To ‘The Worst Buyout Of All Time’
from the who-could-have-predicted-besides-everyone? dept
So we just wrote about how advertising on ExTwitter remains in freefall and is likely down between 75 and 85% from when Elon took over. And now the Wall Street Journal has a piece recognizing that the banks that financed about $13 billion of the $44 billion Musk needed are admitting that it may be one of the worst buyout deals of all time.
The headline of the article actually underplays the story, calling it “the worst buyout for banks since the financial crisis.” But that’s just based on the “hang” — the length of time the deal has remained on their books. You see, the way this normally works is that the big banks lend the money and then almost immediately turn around and sell off the debt to other suckers to deal with.
But, in the case of Musk and Twitter, the banks immediately rubber-stamped it on the basis of “Ooooh, that Elon, doesn’t he always make money?” and without doing much (if any) due diligence. The entities who would buy the debt actually care about the return (or lack thereof) and were quick to recognize that Musk was going to tank Twitter’s revenue potential.
Some of this was known before. Just as Musk was about to officially gain control of Twitter, it was reported that the banks were regretting their decision as they realized they couldn’t sell the debt. There was talk of them offering it to other investors for pennies on the dollar. Instead, they all just kept marking down the value of the debt.
To make matters worse for all involved, it has been reported that the banks agreed to a sell-down letter, preventing any bank from taking a deal that isn’t offered to the rest of them. But to make matters even worse for Elon specifically, he apparently promised the bankers they wouldn’t lose money on this deal. It’s unclear how binding that promise is, and Musk is somewhat infamous for breaking promises. But it certainly could impact his ability to borrow in the future.
That said, the WSJ article highlights that the banks have had to hang on to the (greatly devalued) loans for a record length of time.
According to data from PitchBook LCD, the Twitter loans have been hung longer than every similar unsold deal since the 2008-09 financial crisis for which the research firm has complete records. There were many more hung deals back then, but banks in that period typically were still able to sell or write off most of their hung debt within roughly a year after they issued the loans. One hung deal—a $20 billion all-debt acquisition in 2007—was bigger than Twitter but wound up in bankruptcy about 12 months after banks wrote the check.
Maybe the banks will think about due diligence next time? I mean, it was no secret that the basic ideas Musk laid out for how he was going to run Twitter were absolute nonsense from Day One.
But, while the headline and the beginning of the piece compare the performance of this deal to the financial crisis, they admit deeper in the article that it may just be one of the worst of all time:
Steven Kaplan, a professor of finance at the University of Chicago who has tracked such deals since the 1980s, said Twitter isn’t only the biggest hung deal by dollar amount since the 2008 financial crisis but one of the biggest of all time.
“The loans have weighed on the banks for much longer than other hung deals we’ve seen,” he said.
The article admits that many of the banks did the deal because they wanted to star-fuck Elon:
The banks that agreed to underwrite a deal that even Musk said was overvalued did so largely because the allure of banking the world’s richest person was too attractive to pass up, according to people involved in the deal.
The article notes that the banks that did the Twitter deal, such as Bank of America and Morgan Stanley, are now considered less trustworthy for such deals than the banks that stayed out, like JP Morgan and Goldman Sachs. And in some cases, the bankers who did the deal are seeing their (still massive) bonuses cut because of the deal:
Barclays’s top investment bankers on the mergers and acquisitions team were told at a New York dinner early last year that compensation for everyone in the room would be cut by at least 40% from the prior year. The bank had several hung deals hurting its performance but X was by far the largest, according to people familiar with the situation.
Once bankers were paid their bonuses for the year, about 50 of Barclays’s more than 200 managing directors left the firm, according to the people.
Maybe next time, skip the star-fucking and focus on the actual economics?
Filed Under: debt, elon musk, hang, sell down letter, worst buyout of all time
Companies: bank of america, morgan stanley, twitter, x
Comments on “Banks Realize Backing Elon’s Twitter Buyout Is Close To ‘The Worst Buyout Of All Time’”
They’ll be fine. It’s not like the US allows corporations to suffer the losses of their own stupid decisions. That’s subsidized by the tax payers. Luckily, when there are profits to be had, the tax payers can go fuck themselves, because they are trash…until the next fuck up.
Re:
That only directly happens if things get very bad, as during recessions and depressions. For now, it’s subsidized by the customers of the banks, whether they pay taxes or not. This is arguably worse: regressive, because people with lots of money don’t pay banking fees.
That darn Elmo
“Privitize the profits, socialize the losses” should be printed on US currency
Re:
Isn’t “in God we trust” close enough?
“Eh; it’ll all work out somehow.”
That darn Elmo...
I asked myself how much more schadenfreude could a single, short post provide? And the answer is none, none more schadenfreude.
It’s almost as if there should be some sort of separation between the commercial banking and the investment banking.
Perhaps the federal government could provide some guidance on this subject, maybe in the form of some sort of regulation.
The regulation should be transparent such that there are no hidden problems and it should easily fly through any silly legal challenges. This regulation might be referred to as Glass Seagull.
Re:
Why?
I get your reference, but I don’t see how it’s relevant to this story. It probably would’ve helped during the last big financial crisis. Right now, does the Twitter deal pose much risk other than the bankers not making as much money as they’d like?
Re: Re:
Risky investments might have somewhat contributed to the great depression.
Re:
I guarantee you the government knows far less about competent investing than banks. You see, when banks make enough bad bets they run out of money and fail*. When governments run out of money, they just print more of it and blame the soulless penny pinching monsters for caring more about money than people.
* Unless they are “too big to fail” :^)
Re: Re:
Both the banks and government rely on the “print money” system. If it were more tightly coupled to the value which actual workers actually create, that would be better. But the government really relies on taxes which we choose not to collect from the wealthiest individuals and corporations, which is a problem. Banks, on the other hand, make their own problems, then make those problems everyone else’s.
Re: Re:
Please define your competent investing.
” when banks make enough bad bets they run out of money and fail”
Guess who else is impacted by this failure of the banking industry.
As like with many of those who once had money, as long as the illusion remains, banks will just give you money. The moment it looks like you have no money, they will stop.
This also goes to the “Too big to fail”. Wallstreet and the banks gamble, when its found that the idiots are at the wheel, they promise to government they will chance, swap leadership with one another and try again.
How does that line go? “If someone owes the bank ten thousand, that person has a problem. If someone owes the bank ten billion, the bank has a problem.”
“And when you’re a star, they let you do it.”
Re:
Yeah, but you need to increase that amount when talking about these giant banks. Morgan Stanley and Bank of America each have about 1500 billion USD assets under management. 7 billion each is no big deal; nobody was fired, and the bonuses weren’t even cut to zero.
I’d buy that (debt) for a dollar!
Re:
Keep your money, soon you’ll be able to buy Twitter for this amount.
The linked headline says “Elon Musk told bankers they wouldn’t lose any money on Twitter purchase”—which is not a promise. The story then goes on to talk about “The verbal guarantees were made by Musk”, without describing any actual guarantee; in fact, it also says “The people involved in the deal cautioned that Musk’s guarantee was not based on any formal contract. One said they understood it as a boastful statement”…
So, barring any actual evidence, we should stop talking about “guarantees” and “promises”. Musk has a long history of puffery; and had been sued repeatedly by the S.E.C., long before this Twitter deal began, for talking bullshit to mislead investors. And it’s kind of the job of these bankers to know the reputation of whomever they’re dealing with, and to structure agreements to avoid foreseeable risks. If they had anything legally binding, we’d have almost certainly heard about a lawsuit by now.
The bankers were taken in by a con artist, and just don’t want to admit it. Recent stories about The Boring Company don’t look good either; it was called “cheap and amateurish“, and one of the top 12 workplace safety offenders in the country—”consistently %5bflirting%5d with death“. It was supposed to make tunneling cheaper, and apparently achieved that mostly by ignoring safety regulations and making unusually narrow tunnels (for about the normal cost of such a tunnel).
Bankers aren’t very smart are they??
Re:
Not Morgan Stanley bankers, anyway. They nearly went bankrupt in 2008 (lost around 80% of their market value), as people may remember from “The Big Short”.
On the other hand, Goldman Sachs knows how to work the system well enough to offload the risks of their decisions onto the public. They’ve been accused of “moral bankruptcy”, but have never come close to financial bankruptcy. It’s smart, in a way.
Re: Re:
The Big Short is Morgan Stanley.
Margin Call is a fictional Goldman Sachs. They shifted their problems onto everyone else.
Always interesting to keep that in mind.
I’m starting to think that the only difference between Musk et Madoff is that Madoff knew what he was doing.
Well, at least Elon can’t run for president.
I wonder how that particular debt works. For example, if the amount owed increases, maybe I could buy some of the debt, create a Twitter–excuse me, I mean “Х”–account called “ElonDebt” or something similar, and post every day (or every time the amount owed changes if it doesn’t change daily) “Elon Musk owes me $[quantity].” If it goes viral, I might be able to get some money out of that charlatan just by being a nuisance to him.
Such a shame...
If it weren’t for the fact that innocent people use those banks and will almost certainly be the ones who suffer from it(because the ones who signed off on the deal certainly won’t)this story would be pure schadenfreude.
Oh noes, a bunch of rich douche-bags got conned by another rich douche-bag’s lies and promises of imminent wealth and success, lies which would have been easily exposed if they’d done or demanded even the slightest bit of investigation into Elon’s plans for the company, leaving them stuck with billions of dollars of debt that will never be repaid!
Anyway…
Moving on to companies that haven’t been utter fools recently…
cry me a river
Even if the banks dont like holding on to the loans its still not a loss if Musk makes his payments on time. They could have made more if they had not done it simply because interest rates went up, but that still doesnt make it a loss.
cry me a river
(reposting after post failed to post)
Its not a loss so long as Muck continues to make the required payments. They could have made more if they hadnt done it simply because interest rates went up, but that doesnt make it a loss.
Re:
Not for nothing, but when have you ever heard of Musk keeping up on required payments? Twitter was evicted from at least one office for non-payment.
It wouldn’t be the first time an IB got sold a bill of goods. I worked at one that spent millions of dollars on a project whose ‘big idea’ was basically an obvious optimization that had first been done by spreadsheets 20 years prior (also let that group ignore pretty much any policy they had because they thought it was going to make them so much money).
It is Musk’s management that’s at fault. He’s more interested in peddling ideology than making money. The results show it.
And the management is inept. While I haven’t joined Twitter/𝕏 I used to follow some people, making the platform somewhat of a broadcaster. But then, these idiots changed the sort on posts so new posts aren’t visible, and they lost my set of eyeballs that could have been viewing advertisements along with the posts. I doubt my eyeballs are the only ones that disappeared.
Why should they? The main reason that they couldn’t profit from this is that Elon managed to get the ratings on Twitter/X pulled before the banks could slice and dice the loans into some form of asset backed security and off load most of the risk (while pocketing a nice chunk of cash in the form of commissions) to the greater public.