“Hey @elonmusk can you please fix these bots on this … platform you got tricked into buying,” Barstool Sports guy Dave Portnoy tweeted last night. “I’m getting bot’d to death.” “I have a plan,” Elon Musk replied. People who are 10,000 years old, as I am, will remember that eons ago, in April, Elon Musk WANTED TO BUY TWITTER INC. BECAUSE IT HAD TOO MANY BOTS AND HE HAD A PLAN TO FIX THAT. But then he discovered that there were a lot of bots on Twitter! And then he didn’t want to buy it anymore! There was a whole court case about how Musk didn’t know there were bots on Twitter and was tricked into buying it! Even though literally in the press release announcing the deal he said he would “make Twitter better” by “defeating the spam bots”! And then we spent months pretending that there was some real dispute here, that he might have somehow been misled about the bots. And then he dropped the whole thing a few weeks before the trial was supposed to start and said, sure, fine, I’ll buy Twitter, never mind. And now his fans on Twitter are like “what Twitter really needs is for someone to fix the bot problem” and Elon Musk is like “I have a plan.” I am going insane.
Elsewhere, Musk’s banks, led by Morgan Stanley, are going to take an absolute bath on the $13 billion of debt financing for the Twitter deal that they committed to in April, but on its earnings call last week Morgan Stanley had some good news:
Christian Bolu, Analyst:
Okay. Hear you. Maybe on just leveraged lending and the bridge book. Can you speak to your balance’s sheet risk appetite? You guys seem to be on a number of sort of like hung deals, Citrix, Twitter, et cetera. So first of all, how big is your bridge book or leveraged loan book, however you want to characterize it? And then, second, are you increasing your risk appetite here to capture opportunities. And then, how are you thinking about managing that risk?
Sharon Yeshaya, Chief Financial Officer:
So broadly speaking, I’d say we’ve been extremely prudent in terms of risk management. I think that’s most notable actually when you think about our RWAs and just our capital position. So we’ve been looking at different risk-based metrics really over time and bringing them down over the course of the year. So that’s for the entire institution, just knowing that we’ve entered into what feels like a more volatile period. And as you think about those different relationship and event net of hedges, over the course of this quarter, they actually were quite modest marks given the environment.
I assume that what that means is something like:
- Morgan Stanley has a big book of loan commitments, for Twitter and other buyouts that it has agreed to finance.
- It tries to hedge some of the risks in that book. Perhaps it hedges interest-rate risk (with Treasuries, futures, swaps, etc.), and perhaps it hedges generic credit risk (with index credit-default swaps, etc.). Morgan Stanley’s Twitter commitment looks worse now than it did in April in part because Musk has spent the last few months trashing Twitter, but mostly because rates have gone up and credit has gotten worse generally, and these generic hedges would have protected Morgan Stanley against those risks.
- It probably didn’t go and sell some hedge fund billions of dollars of specific Twitter loan pricing risk, though it would be amazing if it had. If you are the hedge fund manager who’s on the hook for Morgan Stanley’s Twitter losses, do reach out.