The fact that the rise of ridesharing has been hard on taxi companies should come as a surprise to no one. But, as recent reports indicate, the taxi services themselves are not the only institutions finding themselves disrupted by the evolutions of the modern ride service. Taxi lenders — the FIs that make it possible for drivers to borrow the (sometimes vast) sums they need to purchase a cab medallion — have been watching their businesses dry up as the drivers are going elsewhere.
BankUnited Inc., an FI that historically has lent out $214 million for the purchase of 577 medallions (mostly in New York City), says it has been hit hard.
“We are all concerned about the value of the collateral,” Chief Operating Officer Raj Singh said Wednesday (Oct. 21) on a conference call with analysts.
So far, BankUnited borrowers have avoided delinquency, but they are looking more and more like the exception than the norm.
Montauk Credit Union, a New York lender that heavily lent to medallion seekers, was seized by bank regulators earlier this year — a seizure that followed a year and a half after the CEO assured regulators in written form that his bank was “proud to state we have never written off a single penny of principal in any taxi-related loan in the cities we serve.”
And Montauk is far from the only bank watching the ground recede out from under them at an accelerated pace.
“It has happened very quickly,” said Robert Familant, chief executive of Progressive Credit Union, a 97-year-old lender in New York City.
Until very recently, medallion lending was considered rather low risk, and so small banks and credit unions, like Progressive, pursued it actively. Progressive, for example, had about 85 percent of its loan portfolio ($624.7 million) poured into taxis, which are not nearly as safe or lucrative as they once were.
The good news, for Progressive Credit Union anyway, is that its large capital holding will keep it solvent while it repositions its lending business.
“It’s good to have an umbrella when it rains,” Familant said.
And raining it is for many, as the medallions are no longer climbing quickly in value. In fact, the value of those medallions is trending quickly the other way since users are overwhelmingly choosing services like Uber and Lyft over the traditional taxi. In New York, medallions once worth $1.3 million are now worth between $700,000 and $800,000; in Chicago, values have fallen to $240,000 from as much as $360,000.
“Because it has been such a golden asset class for so long, the underwriting standards got very loose,” said Alexander Twerdahl, an analyst at Sandler O’Neill + Partners, who follows specialty finance companies.
And now those standards, combined with declining value, are creating an unwinding medallion market. Citigroup has started foreclosures on 46 medallions; Signature Bank lost $11.4 million last quarter driven by defaulting medallions; Melrose Credit Union has seen $148 million worth of taxi loans (over two-thirds of its portfolio) start to move toward default.
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