A Reuters story lays out the pain and suffering that banks who were dumb enough to lend Elon Musk money to buy Twitter are going through. Here’s the reason why they are suffering:
Banks typically sell such loans to investors at the time of the deal. But Twitter’s lenders, led by Morgan Stanley, could face billions of dollars in losses if they tried to do so now, as investors shy away from buying risky debt during a period of economic uncertainty, market participants said. In addition, Twitter has seen advertisers flee amid worries about Musk’s approach to policing tweets, hitting revenues and its ability to pay the interest on the debt.
The biggest chunk of the debt — $10 billion worth of loans secured by Twitter’s assets — might have to be written down by as much as 20%, one of the sources said. The hit on the loan, distributed among seven banks, could probably be managed by most of the firms without creating a significant hit to profits, the source added.
Another one of the three sources with direct knowledge of the matter estimated that some banks might only take a 5% to 10% writedown on the secured portion of the loan.
The deliberations of how some of these banks are thinking about accounting for these losses have not been previously reported. They come as Wall Street banks are bracing for lower fourth-quarter earnings due to a slump in investment banking revenue and a rise in loan-loss reserves amid a weakening global economy.
Three banking industry sources said the remaining $3 billion, which is unsecured, could lead to steeper losses for the seven Twitter banks. Reuters could not determine how much the banks were planning to write down the unsecured portion of the debt.
The thing is that banks don’t like to lose money. So if it hasn’t happened already, the banks will want Elon to restructure this debt so that the banks lose less money. That ties into the fact that he might have to sell more Tesla stock to keep the banks happy. It will be interesting for those who watch the dumpster fire that is Twitter and the dumpster fire that is Tesla to see what happens next.
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This entry was posted on August 21, 2024 at 9:43 am and is filed under Commentary with tags Twitter. You can follow any responses to this entry through the RSS 2.0 feed.
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The Banks Who Gave Elon Musk Money To Buy Twitter May Be Reconsidering Their Life Choices
A Reuters story lays out the pain and suffering that banks who were dumb enough to lend Elon Musk money to buy Twitter are going through. Here’s the reason why they are suffering:
Banks typically sell such loans to investors at the time of the deal. But Twitter’s lenders, led by Morgan Stanley, could face billions of dollars in losses if they tried to do so now, as investors shy away from buying risky debt during a period of economic uncertainty, market participants said. In addition, Twitter has seen advertisers flee amid worries about Musk’s approach to policing tweets, hitting revenues and its ability to pay the interest on the debt.
The biggest chunk of the debt — $10 billion worth of loans secured by Twitter’s assets — might have to be written down by as much as 20%, one of the sources said. The hit on the loan, distributed among seven banks, could probably be managed by most of the firms without creating a significant hit to profits, the source added.
Another one of the three sources with direct knowledge of the matter estimated that some banks might only take a 5% to 10% writedown on the secured portion of the loan.
The deliberations of how some of these banks are thinking about accounting for these losses have not been previously reported. They come as Wall Street banks are bracing for lower fourth-quarter earnings due to a slump in investment banking revenue and a rise in loan-loss reserves amid a weakening global economy.
Three banking industry sources said the remaining $3 billion, which is unsecured, could lead to steeper losses for the seven Twitter banks. Reuters could not determine how much the banks were planning to write down the unsecured portion of the debt.
The thing is that banks don’t like to lose money. So if it hasn’t happened already, the banks will want Elon to restructure this debt so that the banks lose less money. That ties into the fact that he might have to sell more Tesla stock to keep the banks happy. It will be interesting for those who watch the dumpster fire that is Twitter and the dumpster fire that is Tesla to see what happens next.
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This entry was posted on August 21, 2024 at 9:43 am and is filed under Commentary with tags Twitter. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.