Friday, April 15, 2016

More Bad News for CUs Holding Taxi Medallion Loans

There is more bad news for credit unions holding taxi medallion loans, as taxi medallions continue to decline in value and taxicab operators experience a drop in revenues.

Data from New York City and Chicago show that taxi medallion prices are still falling and have not stabilized.

The New York City Taxi and Limousine Commission reported two medallion sales in March 2016 at $520,000 and $580,000. In October 2015, taxi medallions sold at $675,000 to $700,000.

In Chicago, the transfer prices for taxi medallions ranged between $50,000 and $95,500 during the first quarter of 2016. In comparison, taxi medallions sold for $238,000 and $150,000 in October 2015.

Unless borrowers bring additional outside equity to the table, these taxi medallion lending credit unions will have difficulty refinancing these loans, when these loans mature.

In addition, taxi medallion owner revenues are falling, which cannot support medallion values. According to a recent report by Morgan Stanley, management at Signature Bank stated that the average annual income that a taxi driver generates has declined 13.5 percent peak to current, from $52,000 to $45,000. This raises concerns that the cash flows will not be sufficient to repay these taxi medallion loans.

All this indicates is that taxi medallion credit unions will need to increase provisions on these loans, as these credit unions are certain to write-off a significant portion of their taxi medallion loan portfolio. This will negatively impact the earnings at these credit unions, as well as net worth.

Note: Morgan Stanley's base assumption is the cumulative loss rate on Signature's Bank taxi medallion loan portfolio is 25 percent and worst case cumulative loss rate scenario is a 50 percent.

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