The Wall Street Journal reports that Elon Musk is a historic flop.
The $13 billion that Elon Musk borrowed to buy Twitter has turned into the worst merger-finance deal for banks since the 2008-09 financial crisis.
The seven banks involved in the deal, including Morgan Stanley and Bank of America, lent the money to the billionaire’s holding company to take the social-media platform, now named X, private in October 2022. Banks that provide loans for takeovers generally sell the debt quickly to other investors to get it off their balance sheets, making money on fees.
The banks haven’t been able to offload the debt without incurring major losses—largely because of X’s weak financial performance—leaving the loans stuck on their balance sheets, or “hung” in industry jargon. The resulting write-downs have hobbled the banks’ loan books and, in one case, was a factor that crimped compensation for a bank’s merger department, according to people involved with the deal.
The value of the loans to Musk quickly soured after the $44 billion acquisition was completed. But new analysis shows how their persistent underperformance has put the deal in historic territory.
I’m slightly sympathetic. I too was in debt to the Bank of America, but then I paid off my mortgage last month. If I’d been able to take out a $13 billion loan I wouldn’t be paying it off, either.
I wouldn’t be able to take out that loan anyway, because I lack “allure”.
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.
You’d think banks would be hard-headed and practical about this sort of thing, but no, they fell for “allure”.
The bankers played too many video games: “Allure bases are belong to us!”
If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.
J.Paul Getty
Looks like my Bank of America account fees are going to have to go up.
It couldn’t happen to a nicer wunch.
Musk has an allure? Seems the bankers mistook the stench of a pile of crap for the aroma of allure.
Congratulations on the mortgage payoff! That’s a big deal.
Pierce R. Butler: LOL
good allusion to an old meme!
Deutche Bank also had lent money to convicted felon creepy weirdo Donald Trump because of his allure. Dude already had some bankruptcies and most major banks would not have.
Apparently, allure, it’s a thing.
“If you’re so rich, why aren’t you smart?”, part the infinity.
Elon Musk says he’ll take a job in the Trump cabinet if offered
Thus far, X hasn’t defaulted on the loans. The banks have higher risk on their balance than they’d like, is all. When X goes bust, that’s when the knives really come out.
Here’s what I said about this on JoeMyGod: Still no mention of any of these banks taking any sort of meaningful action to get their money back. Until I see news of lawsuits or other OVERT collection action, I’m sticking with my belief that the banks never expected a monetary return, and went in with Musk for reasons other than financial gain or profit.
And he helped expose the SpaceBros as the racist, misogynistic, vapid, technocrats that they are. Any criticism of rocket jesus online gets piled on with “bUt hE’s gOiNg To tAkE uS tO mArZ, wHat hAvE yOu dOne wItH yOuR LiFe?”
Another reason to slap the face of anyone recommending that government be run like a business.
Reginald Selkirk @ 10
Looks like knuckleheads have ODed on oxytocin from their mutual allure. First, they stink up the ‘net, now they want to spread their stench across the USA, and then probably the world.
So it goes.
I think they mistook something else for “allure”. Perhaps “ordure”, or even “manure” …
@10 Oh dear blob no. I wouldn’t trust him to run a sausage sizzle, much less a government agency. It’s all rather moot, at some point Musk or Trump will get their nose out of joint and they’ll go back to hating each other.
The banks did nothing. They were not attracted by allure, or manure, or anything else.
The banking executives who approved loans that would not have met the banks’ individual underwriting requirements, or Federal Reserve standards, for secured loans absent executive intervention, on the other hand…
I think it not a coincidence that most of the very top executives at those banks are second-or-later-generation banking executives. How’d that work out thirty years ago, when 80% of the CEOs of failed savings and loans were second-or-later-generation banking executives, anyway? More to the point, hadn’t any of these jerks heard of “dot-bomb” and therefore done some actual, legally required, due diligence?
Frankly, I’d consider an assistant professor who actually teaches undergrads at a liberal-arts college, with a young family in a small town with affordable housing prices, to have more banking “allure” than the CEO of a company with a labor history out of the 1920s Alabama textile-mill, who became a rich man via dot-coms but apparently didn’t learn anything, and tried at least twice (that is public) to back out of the purchase deal. Said professor is far more likely to make personal efforts to repay than said CEO. Thus, I’m obviously not fit to be a banker (just to sue them, including all but one of those seven banks).
Jaws: What, exactly, do yo mean by “second-or-later-generation banking executives?”
What was it that Jesus said?
“To him who has will more be given?”
He was clearly talking about money, right..;?
God explicitly forbade loan interest.
Raging Bee, @ #12:
Well, there’s a couple of points to consider here… The first is, we don’t know the terms of these loans. We don’t know when they’re due to be repaid, what conditions are attached, what interest rate they bear, or how the interest is being treated. So we have no idea whether there even is any basis for the banks to ask for their money back yet.
Secondly, as steve oberski alluded to @ #2, how banks treat loans very much depends on how big they are, and large delinquent loans pose a particular problem. As long as they keep rolling the loan over, it can remain on their books as an asset. As soon as they mark it down as delinquent, it becomes a loss.
This is a really major issue right now with commercial real estate (CRE). There are truly vast sums of money borrowed against CRE which pretty much everybody knows will probably never be repaid, becaue the CRE market collapsed during Covid, and almost certainly isn’t coming back. The banks have been rolling the loans over on existing terms, because if they don’t, a lot of them will suddenly find themselves bankrupt. The question is: how long can they keep kicking the can down the road? It’s probably all going to have to be unwound eventually, but nobody knows how to do that without triggering a financial crisis that would make 2008 look like a storm in a teacup.
that guy the Afrikaner is not as sharp as he pretends. he bought that “business” with a bid he made that he did not want to honor but was forced to and his financiers went along with it n because reasons then instead of working to improve it he just acted like a spoiled kid and fucked it up even more. I guess he needed to prove to the rest of the world that the god had feet of clay after all.
As to him getting a position in the next Dump administration. The only way that would happen is that Dump would have to win which is not a sure thing and only way that would last any length of time is he would have to pay the Dumpster cash money and be in control because he sure does not appear to be much of a team player, for that matter neither does the Dumpster.
we live in interesting times that is for sure.
@19:
Like this (point 1); this is far from the only example among the seven ethical dwarves at issue here. Success in “banking” is neither genetic nor nurture — or at least shouldn’t be, especially in a changing world. Getting a job in “banking,” however…
Raging Bee @12: Why banks have losses on paper is that everyone expects X will likely default. But they haven’t yet. Until X defaults, there’s nothing for the banks to sue over.
Dunc@22: for this kind of investment the banks need to mark to market, so they need to declare losses already even while X is still current. I’m not entirely up on the rules of what can be kept at face value and what isn’t be marked to market, but clearly this loan portfolio is the latter since that’s how we keep getting estimates of X having lost half, two thirds, or now 90% of its value.
A big part of the problem is that, for loans this large, the original lending banks have no intention of holding onto the entire debt. There are sound reasons for this. As long as the bank is holding the whole loan, it has that much less capital on which it can base other loans. And if the loan goes bad, they’re stuck with the whole loss. So it is common, and expected, that the original lenders will sell off large chunks of the loan to other banks. They make money from fees on the sale of portions of the loan, which gives them more money to lend out, and, with a large chunk of the loan off the books, they have still more money to lend out. And if the borrower goes belly-up, the original lending bank isn’t left holding the whole bag. This is not a scam; it is a legitimate business practice. But it does create incentives to make loans they might not make if they couldn’t sell off large chunks of them.
At this point, nobody seems to know whether the $13 billion is at serious risk of not being paid in the normal course or is not secured by adequate capital, but the lack of buyer interest is concerning. Of course, the potential buyers may be no smarter than the original lenders and may be wrong not to jump on it, but that’s not the way to bet.
For “adequate capital” read “adequate collateral.”
This new learning amazes me. Explain again how sheep’s bladders may be employed to prevent earthquakes.
:)
@29:
Robbo, you can’t prevent earthquakes with sheep’s bladders. With enough of them, deployed both underneath and overhead, you can prevent foreseeable damage from earthquakes, neglecting as insignificant falling glass, fire from ruptured gas lines and tanks, flooding from burst water systems (that is, all the things that made San Francisco 1906 great!). It’s sort of like the missile defense system from Bloom County made by converting the government contract to dollar bills and orbiting them as a shield.
OK, maybe not so much. Or, since this was inspired by banking foofery, maybe all too much.
Musk has announced that he’s selling a lot of Tesla in order to keep Space-X going.
But Tesla is way over-priced, and he knows selling a lot will lower its price, so is he telling us the true reason he’s selling?
I used to be a Tesla fan-boy, but would never buy from Musk. Fortunately, there is lots of competition that developing faster than Tesla is.
Well, if he’s using Tesla stock as collateral for this loan, there might be a connection here…maybe he knows Tesla is about to start going downhill, so if he sells some of his shares first, he makes a profit, and then when the stock price tanks, he can just tell his creditors, “I’m not paying you so you can take all the collateral I put up, HAAA HA, go fuck yourselves!”
seachange @8: Isn’t Deutche Bank basically a front for the Russian Mafia/Russian Government?
microraptor: I dunno about Deutche Bank in general, but it’s possible some Russian gangsters leaned on them, and chipped in, to give Trump a hand when he needed it.
Apparently, allure, it’s a thing.
Quite possibly the only thing that can, unlike “value,” keep on growing indefinitely in a finite world. If enough of the right kind of people agree to say it’s growing, anyway…
I couldn’t remember the exact wording or provenience of the quote @#2, so I reworded it, and used the figures “ten thousand” and “ten billion” when elsewhere.
The other quote that came to mind was Trump’s words from the Access Hollywood tape:
“And when you’re a star, they let you do it. ”
Originally about doing something else, but it felt appropriate here.