Elon Musk’s bankers have a dilemma: do they help him kill the Twitter deal?

Wall Street lenders bankrolling Elon Musk’s $44 billion (€42 billion) acquisition of Twitter may soon find themselves in an awkward position: should they help the world’s richest person scupper the deal and thereby lose out on one of the industry’s biggest pay-days?

Mr Musk suggested this week that $13 billion in debt financing crucial for the Twitter deal could be at risk if the social media company does not satisfy his stated concerns about fake accounts on the platform. This, Mr Musk said, could give him grounds to walk away from a deal, which has become less attractive since tech valuations plummeted.

For the banks working on the deal, a huge pay-day is on the line. Morgan Stanley, Goldman Sachs, JPMorgan Chase, Bank of America, Barclays and Allen & Co stand to earn $191.5 million in fees, the largest fee pool this year and the third-biggest since 2020, according to Refinitiv data.

However, the bulk of that sum is contingent on the acquisition closing. If the deal is called off, Goldman would earn $15 million, only 18.75 per cent of the $80 million it would make if Mr Musk completes the buyout, according to regulatory filings. JPMorgan stands to make $53 million but will pocket only $5 million if Mr Musk walks away.

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Goldman declined to comment while JPMorgan, Twitter and Mr Musk did not respond to requests for comment.

This does not include the fees a syndicate of banks — Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho and Société Générale — stand to earn if they end up underwriting the $13 billion in debt financing. The banks declined to comment on whether they were still committed to the transaction.

Mr Musk’s Twitter deal was a bright spot in a year that has been disappointing for Wall Street banks. Bankers had expected a slowdown in fees after a record haul in 2021 but were still optimistic for an above-average year, telling investors in January that deal pipelines were very healthy.

But with company leaders fretting about a potential recession and the uncertainty stoked by Russia’s war with Ukraine, global investment banking fees have plummeted to about $46 billion this year. This is down from $70.5 billion in the same period last year and is the lowest fee haul for this point in the year since 2016, according to Refinitiv data.

The banks’ returns on the Twitter deal have already been reduced by Mr Musk deciding against using a margin loan to help finance it. He had initially secured commitments from banks for $12.5 billion in loans against a portion of his Tesla stock, thrashing out terms over Easter weekend.

Weeks after announcing the terms, Mr Musk cut it in half to $6.25 billion before ultimately scrapping the margin loan altogether.

Mr Musk had agreed to interest payments on the three-year margin loan of 300 basis points over the three-month Secured Overnight Financing Rate or zero, whichever is higher. Bankers viewed the terms as favourable given that the loan was capped at 20 per cent of the value of the Tesla shares and the stock is heavily traded.

At a minimum interest rate of 3 per cent, Mr Musk would have paid lenders at least $375 million each year had the original $12.5 billion been fully utilised. He would have owed at least half of that for the reduced margin loan.

In the end, the 12 lenders on the loan pocketed a nominal fee for committing to the loan for one month, according to one person familiar with the matter.

“We spent Easter on it,” said one banker on the Twitter deal. “That’s the life of a banker.” — Copyright The Financial Times Limited 2022