Banks engaging in lending activities for Twitter accounts is an unfavorable financial endeavor
Elon Musk, the founder of Tesla, shelled out over $40 billion to acquire Twitter almost two years ago, with part of the funding coming from bank loans. Unfortunately for the lending institutions, these loans have turned out to be a financial headache for them. As per a news report, these loans, amounting to $13 billion, have been a hard sell for the banks, forcing them to keep them on their books. The reason behind this is that the banks could only offload these loans at a substantial discount given Twitter's poor financial health.
As a result, the banks have had to write off a significant portion of the loan's value, which has negatively impacted their financial statements. In some instances, this has even led to pay cuts for the concerned departments, as reported by sources within the sector.
Musk finalized the Twitter deal in October 2022, for approximately $44 billion. The majority of the funds came from the sale of Tesla shares, while the remaining amount was borrowed from seven banks, including notable names like Morgan Stanley and Bank of America.
The banks may still benefit from this deal in the long run if Musk manages to repay the loans in full. In the meanwhile, they are reaping high-interest payments from Musk. However, these interest payments are adding to Twitter's financial woes, as the company struggles to turn a profit. The microblogging platform, now rebranded as X, is facing the exodus of its major advertising clients. They are concerned about the impact on their brand image.
Last year, research by hate speech researchers revealed how advertising from well-known brands could appear alongside anti-Semitic posts and posts from Nazi sympathizers on Twitter. X denied these occurrences being common, and in turn, filed a lawsuit against the researchers, which has yet to yield any results. More recently, X has also taken legal action against wayward advertising clients, accusing them of conspiring to divert ad dollars away from the platform.
The banks are currently struggling to find buyers for the loans they extended to Musk, as the high-interest payments from Twitter are adding to its financial troubles. Due to the significant discount required to offload these loans, the banks have had to write off a considerable portion of their value.
