When Elon Musk took the reins of the social media platform X (formerly known as Twitter) in October 2022, it was a bold move that saw the billionaire borrow a hefty sum of $13 billion from a consortium of major banks. These institutions included heavyweights like Morgan Stanley, Bank of America, and BNP Paribas. Fast forward a little over a year, and it seems that these banks might be regretting that decision. Why? Because it’s turned into one of the most disastrous financing deals since the 2008 financial crisis.
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A Deal That’s Turning Sour
The deal to purchase X for $44 billion wasn’t just a monumental leap for Musk; it also became one of the most high-stakes lending arrangements in recent banking history. According to reports from The Wall Street Journal, this loan to Musk is proving to be the worst-performing acquisition financing for banks in more than a decade. In most similar situations, banks lend money for acquisitions and then quickly sell off the debt to other investors, usually making a tidy profit in the process. But that hasn’t been the case here.
The main issue? X’s financial performance has taken a nosedive since Musk’s takeover. The platform’s value has plummeted, and now, the banks holding the debt are finding it nearly impossible to sell it off to investors without taking a major loss. If they do eventually sell, they’d likely have to accept a lower price than they lent, essentially selling at a loss. This is what insiders in the industry refer to as a “suspended deal,” where the loan essentially sits on the banks’ books, weighing down their finances.
According to Steven Kaplan, a finance professor at the University of Chicago, there’s a possibility that these banks might eventually be able to offload the debt, but at a steep discount. He adds, “With Elon Musk, you never really know. They might be able to limit the damage and avoid a complete financial catastrophe.”
Struggling to Retain Advertisers
One of the primary reasons the banks are in this bind is the decline in revenue for X, which was largely driven by advertising before Musk’s takeover. Musk’s controversial decisions, such as massive layoffs—including key staff members responsible for moderating content—have made many advertisers uneasy. Major companies like Coca-Cola and Apple have pulled back from advertising on the platform, contributing to a sharp revenue drop.
Musk had hoped to offset these losses by pushing for paid subscriptions on the platform, but this strategy hasn’t proven to be a game-changer just yet. According to internal documents obtained by The New York Times, X only generated $114 million in revenue in the U.S. during the second quarter of 2024. That’s a staggering 25% decrease from the first quarter and a 53% drop compared to the same period last year.
To make matters worse, Musk has taken legal action against the advertisers, accusing them of “illegally boycotting” the platform. This has only added fuel to the fire, further distancing those advertisers from returning anytime soon.
Debt Weighing Heavily on Banks
The reality for the banks is that they can’t keep holding onto the debt forever. If they continue to carry this unsold loan, it severely limits their ability to lend to other, more stable companies. The failure of Silicon Valley Bank earlier in 2023 served as a stark reminder of how fragile the banking sector can be. As a result, global regulators are now paying closer attention to the amount of bad debt sitting on bank balance sheets.
Because of this, Bank of America and Morgan Stanley—who were leading the pack in leveraged investment banking just a couple of years ago—have now been overtaken by JP Morgan and Goldman Sachs, who were not involved in the X deal.
Could Musk Save the Day?
One potential solution could be for Musk to repay part of the debt at a reduced interest rate, which would help alleviate some of the pressure on the banks. But as of now, there’s been no indication that Musk is willing to make such a deal. If anything, he seems more focused on handling the internal challenges of his platform than on negotiating with the financial institutions that helped fund the acquisition.
In the end, it’s hard to predict exactly where this will all lead. Banks are stuck in a precarious position, Musk is doubling down on his vision for X, and the platform’s financial future remains uncertain. What’s clear, however, is that for those involved in financing Musk’s ambitious purchase of X, this deal has turned into a lesson in risk, one they won’t soon forget.
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