Wall Street Banks Seek to Recover from Elon Musk's Twitter Debt
Equity analysts anticipate a week of recovery for Wall Street banks following their significant investments in Elon Musk's Twitter acquisition. Sources disclose that Morgan Stanley (MS) and Bank of America (BAC) will approach investors to offload portions of the debt extended to Musk in 2022 for the purchase of the social media platform known as X.
The Wall Street Journal reports that the banks aim to sell senior portions of the debt, offering investors a return of approximately 90-95 cents on the dollar. Bloomberg indicates that the transaction may involve an additional incentive—a claim on X's interest in Musk's AI venture, xAI Corp.
Financial institutions committed $13 billion to Musk's $44 billion Twitter buyout in October 2022. However, as X encountered difficulties, the value of these loans declined, leaving banks struggling to avoid substantial losses on the sale of their investments.
Despite these challenges, banks anticipate potential profitability from junior debt stakes should X's financial performance improve. The current sale of senior portions is driven by optimism regarding X's future prospects due to Musk's close ties to President Donald Trump.
Musk's ownership of private entities, such as SpaceX, which seeks to launch rockets to Mars, strengthens the valuation of X, as these companies could potentially go public via initial public offerings (IPOs).
The arrival of the Trump era has fueled optimism among Wall Street dealmakers due to expectations of regulatory easing and increased leniency towards corporate mergers. Morgan Stanley CEO Ted Pick anticipates a significant revival in corporate finance activity, similar to the mid-1990s.
Strong performance in investment banking and trading boosted profits for major banks in the fourth quarter of 2024, including JPMorgan Chase (JPM), Bank of America, Goldman Sachs (GS), Citigroup (C), and Wells Fargo (WFC).