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Banks Are Sitting On $2bn Twitter Losses, Report Claims – Business Live

Banks sitting on $2bn losses after Elon Musk’s Twitter takeover – reportThe banks that helped fund Elon Musk’s takeover of social network Twitter, now renamed X, are sitting on losses of as much as $2bn, the Wall Street Journal has reported.

Musk borrowed $13bn (£11bn) to fund the $44bn deal – a huge sum for an individual to take on. Yet the takeover quickly went sour, with Musk at first trying to get out of the deal after the valuation of technology companies plunged amid rising interest rates.

He then fired the company’s top leadership, and less than a month later warned Musk said it was not out of the question that the network would go bust. Since then he has struggled with falling advertiser revenues.

Usually banks who finance big deals like this would offload the debt to others, walking away with a handsome profit. That has proven much more difficult in the Twitter deal because of the bad timing, so they have hung on to the debt in the hope that its value recovers. The Journal reported:

The banks currently expect to take a hit of at least 15%, or roughly $2bn, when they sell the debt, people familiar with the matter said. That would mean hundreds of millions in losses for those holding the largest pieces, which include Morgan Stanley, Bank of America, Barclays and MUFG. BNP Paribas, Société Générale and Mizuho were also involved.

After holding the debt for a year—an eternity in the corporate-finance world—the banks, which had hoped they could sell it by Labor Day, have recently begun preparations to try to unload at least some of it, the people said.

Key events

There is more interesting info in the Wall Street Journal report on the Twitter-related debt held by a clutch of big banks: they are facing a bit of a catch-22.

If they want to sell, they need to get a debt rating from a big agency such as Moody’s or S&P. But if they get a rating, they are less likely to be able to sell, because it will probably be worse than Twitter had before Musk bought it and turned it into X.

X looks very similar on the face of it to Twitter, but with some important changes: in July Musk said that cashflows were negative because of a nearly 50% drop in advertising revenue and a heavy debt load.

It looks different behind the scenes as well, with swingeing cost cuts and a whole new leadership team.

As the Journal points out, those changes are unlikely to improve the rating on the debt to investment grade, rather than the junk rating that Twitter’s debt had even before the takeover.

Banks sitting on $2bn losses after Elon Musk’s Twitter takeover – reportThe banks that helped fund Elon Musk’s takeover of social network Twitter, now renamed X, are sitting on losses of as much as $2bn, the Wall Street Journal has reported.

Musk borrowed $13bn (£11bn) to fund the $44bn deal – a huge sum for an individual to take on. Yet the takeover quickly went sour, with Musk at first trying to get out of the deal after the valuation of technology companies plunged amid rising interest rates.

He then fired the company’s top leadership, and less than a month later warned Musk said it was not out of the question that the network would go bust. Since then he has struggled with falling advertiser revenues.

Usually banks who finance big deals like this would offload the debt to others, walking away with a handsome profit. That has proven much more difficult in the Twitter deal because of the bad timing, so they have hung on to the debt in the hope that its value recovers. The Journal reported:

The banks currently expect to take a hit of at least 15%, or roughly $2bn, when they sell the debt, people familiar with the matter said. That would mean hundreds of millions in losses for those holding the largest pieces, which include Morgan Stanley, Bank of America, Barclays and MUFG. BNP Paribas, Société Générale and Mizuho were also involved.

After holding the debt for a year—an eternity in the corporate-finance world—the banks, which had hoped they could sell it by Labor Day, have recently begun preparations to try to unload at least some of it, the people said.

Signage is seen for the FCA (Financial Conduct Authority), the UK’s financial regulatory body, at their head offices in London. Photograph: Toby Melville/ReutersThe UK’s Financial Conduct Authority (FCA) has warned that cryptocurrency firms are not properly telling customers about the risks of their products, two weeks after new legislation gave it oversight over the sector.

In news that will not surprise anyone familiar with the wild west of crypto promotions, the City regulator said it had seen:

Promotions making claims about the ‘safety’, ‘security’ or ease of using cryptoasset services without highlighting the risk involved

Risk warnings not being visible enough due to small fonts, hard-to-read colouring or non-prominent positioning

Firms failing to provide customers with adequate information on the risks associated to specific products being promoted

It is another shot across the bows from the regulator, which has already restricted promotions by one crypto company, rebuildingsociety.com Ltd. It has also issued 221 alerts about illegal promotions from unauthorised firms on its “Warning List”.

An EY-linked auditor to the Adani Group is under scrutiny from India’s accounting regulator, Bloomberg News has reported.

The National Financial Reporting Authority, or NFRA, has started an inquiry into, S.R. Batliboi, a member firm of EY in India, Bloomberg said, citing unnamed sources.

S.R. Batliboi is the auditor for five Adani companies which account for about half Adani’s revenues.

Bloomberg reported that representatives for NFRA and the Adani Group didn’t respond to an emailed request for comments. A representative for EY and S.R. Batliboi declined to comment to Bloomberg.

President of China Xi Jinping attends the plenary session during the 2023 BRICS Summit in Johannesburg, South Africa. Photograph: ReutersChina’s economic slowdown is causing worries at home, as well as in Germany and other big trade partners.

A series of Chinese government actions have signalled their concern about slowing growth, which could cause problems for an authoritarian regime.

Xi Jinping, China’s president, visited the People’s Bank of China for the first time, according to reports yesterday. “The purpose of the visit was not immediately known,” said Reuters, ominously.

State media also reported that China had sharply lifted its 2023 budget deficit to about 3.8% of GDP because of an extra $137bn in government borrowing. That was up from 3%. The Global Times, a state-controlled newspaper, said the move would “benefit home consumption and the country’s economic growth”, citing an unnamed official.

An employee oversees the production process of solar cells at a machine at the solar cell plant of Swiss group Meyer Burger in Bitterfeld-Wolfen, eastern Germany on 26 September 2023. Photograph: Jens Schlueter/AFP/Getty ImagesGermany’s economic fortunes were better than expected in October, according to a closely watched indicator – but whether it’s overall good news or bad depends on who you ask.

The ifo business climate index rose from 85.8 to 86.9 points, higher than the 85.9 expected by economists polled beforehand by Reuters.

Germany has been struggling as growth slows in China, a key export market, as well as the costs of switching from Russian gas to fuel its economy. You can read more context here:

Franziska Palmas, senior Europe economist at Capital Economics, a consultancy, is firmly in team glass half empty. She said:

The small rise in the Ifo business climate index (BCI) in October still left the index in contractionary territory, echoing the downbeat message from the composite PMI released yesterday. This chimes with our view that the German economy is again recession.

Despite the improvement in October, the bigger picture remains that the German economy is struggling. The Ifo current conditions index, which has a better relationship with GDP than the BCI, is still consistent with GDP contracting by around 1% quarter-on-quarter. This is an even worse picture than that painted by the composite PMI, which fell in October but points to output dropping by “only” 0.5% quarter-on-quarter.

But journalist Holger Zschaepitz said it looks like things are improving:

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