Wall Street hopes to get rid of a bad Elon Musk bet

Wall Street banks are hoping this is the week when they can start to recover more from the bad bets they made on Elon Musk’s Twitter buyout.

Morgan Stanley (
MS
) and Bank of America (
BAC
) are among the banks that plan to sound out investors in the coming days to buy portions of debt initially provided to Musk in 2022 to take over the social media platform now known as X, according to people familiar with the matter.

The Wall Street Journal
earlier reported
on the banks’ plans, noting that they are shopping senior portions of the debt that would give them back around 90 to 95 cents on the dollar.

Bloomberg
separately reported
that the offer from the banks is coming with the added incentive of a claim on X’s interest in Musk’s AI startup
xAI Corp.

Big banks fronted $13 billion in financing when Musk bought Twitter in October 2022 for $44 billion. But those loans lost value as the X struggled, and the banks weren’t able to get them off their books without taking significant losses.

These banks could still earn above break even on the loans from their more junior debt stakes if X’s profitability improves.

The hope now in selling the senior portions of the debt is that future prospects for X are seen as rosier given Musk’s close alliance with President Donald Trump. And banks would be remiss to lose such a client as Musk, the world’s richest man.

For instance, Musk owns several private companies that may one day go public through an initial public offering, including rocket and satellite company SpaceX that hopes to launch rockets to Mars.

“We will pursue our manifest destiny into the stars, launching American astronauts to plant the stars and stripes on the planet Mars,” Trump said last week during his inauguration address.

The comments prompted two thumbs and a smile from Musk, who was seated in the third row behind the new president.

The valuation of X is being boosted by a previously undisclosed stake of about $6 billion in
xAI Corp.
, Musk’s AI startup, according to a Bloomberg
report
Monday.

The new push by banks to sell this debt is the latest example of how the arrival of the new Trump era has Wall Street dealmakers newly optimistic about their fortunes.

The stocks of the biggest US lenders rallied following the election of Trump on
hopes that his administration would loosen some rules
and apply more leniency in approving corporate mergers.

The Trump administration is expected to scrap or revise a set of proposed capital rules that would have crimped future industry profits.

So long as current conditions remain in markets and the economy broadly, dealmaking should improve through the year, Morgan Stanley CEO Ted Pick told analysts earlier this month.