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The Big Take

Wall Street’s Lucrative Leveraged-Debt Machine Is Breaking Down

Big banks are stuck with about $40 billion of risky debt on their books — blocking the M&A machine that’s enriched bankers and private-equity executives over the past decade 

The $12.5 billion of debt that backed Elon Musk’s buyout of Twitter is by far the biggest burden weighing on balance sheets for any single buyout.

The $12.5 billion of debt that backed Elon Musk’s buyout of Twitter is by far the biggest burden weighing on balance sheets for any single buyout.

Photographer: Jason Henry/Redux

One of the most lucrative money-making machines in the world of finance is all clogged up, threatening a year of pain for Wall Street banks and private-equity barons as a decade-long deal boom goes bust.

After driving a flurry of mega buyouts that contributed to a $1 trillion profit haul in the good times, some of the world’s largest banks have been forced to take big writedowns on debt-fueled mergers and acquisitions underwritten late in the cheap-money era. Elon Musk’s chaotic takeover of Twitter Inc. is proving especially painful, saddling a Morgan Stanley-led cohort with around $4 billion in estimated paper losses, according to industry experts and Bloomberg calculations.