Why Morgan Stanley Mull Tesla Margin Loans to Slash Twitter Debt？
Bloomberg posted news yesterday that the bankers behind Musk's purchase of Twitter are considering replacing Musk's loan, and the initial interest rate was too high. The advantage of this is that it can reduce the burden on Musk.
The margin loans are one of the options that the Morgan Stanley-led bank group and Musk's advisers have discussed to ease the $13 billion debt Twitter took on as part of Musk's $44 billion deal.
This news may seem ordinary, but its logic is wrong. Don't banks make money by charging interest? The higher the interest charged, the better. When did you suddenly think of reducing the burden on customers and making yourself less money? The picture below is a screenshot of the news.
According to this news, Musk's annual interest expense is now $1.2 billion. Twitter is trouble for Musk, which can turn the world's richest man into the world's first loser.
Musk has not commented on the sale of shares in early November, which implies that he may sell shares again. In addition to these funds that may have to be returned, there is still $13 billion in bank funds that need to be repaid in Musk's acquisitions.
Why does Morgan Stanley take the initiative to help customers reduce interest expenses?
And judging from Bloomberg news, Morgan Stanley has a more positive attitude than Musk and wants to promote the work of reducing interest rates on loans, especially to replace those unsecured loans - $3 billion. The discussions have so far focused on how to replace $3 billion of unsecured debt on which Twitter pays an interest rate of 11.75%
One reasonable explanation is...
Musk's Tesla stock pledge rate is very high, the table below is the previous statistics. Morgan Stanley has the best relationship with him, so there is a good chance that the vast majority of these stocks are in Morgan Stanley. According to the current stock price ($170 per share, equivalent to $510 per share in 2020), he pledged about $45 billion in 2020. Considering the previous stock price was higher, the actual cash amount may be even higher.
Source: TigerBrokers
Now that Tesla’s stock price has withdrawn by 50%. Based on regulations, Morgan Stanley must ask Musk to pledge more shares or ask Musk to pay back the money. However, Morgan Stanley may have accepted too many Tesla stock pledges, and the risk control department has not allowed Musk to continue to pledge stocks, so Musk can only pay back the money. But Musk has no money now, and he can only sell a lot of stocks if he wants to pay back the money. Selling stocks is a quick death for Morgan Stanley, which will trigger a series of Margin Calls.
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