Zaz vs. Goliath

David Zaslav
David Zaslav, president and C.E.O. of Warner Bros. Discovery. For reasons that aren’t yet obvious, the WBD stock has been on a tear since the beginning of the year. Photo: Kevin Dietsch/Getty Images
William D. Cohan
January 8, 2023

Perhaps it’s the mirth and enthusiasm of a new year—to say nothing of the eternal January optimism of investment bankers—but I’ve been reading that some of our brightest minds expect the M&A environment to rebound in 2023. I have a different view. And, naturally, it involves the instructive lesson of Elon Musk and Twitter, and ends with the instructive lesson of Elon and Tesla.

On January 12, Bank of America reports its 2022 earnings. Four days later, Morgan Stanley does the same thing. Why should anyone care? Because Morgan Stanley and BofA were the two lead banks that underwrote the $13 billion of Twitter’s senior secured debt to help finance Elon’s takeover of the company, which closed last October. 

Normally the banks would syndicate—sell off—that debt lickety-split to investors all around the world and move it off their balance sheets in order to make room to underwrite and then to sell more loans, capturing fees while trying to eschew risk. Wall Street is in the moving business, not the storing business, as I’ve noted before. But since it couldn’t move the Twitter debt—at least not without perfecting a loss, probably in the range of 50 percent or so—it has had to store the debt on its balance sheets, an uncomfortable and unexpected reality of doing business with Elon.