Garnet Capital Advisors Blog

The emergence of Uber has proven to be an expensive lesson for banks who hold portfolios of taxi medallion loans that have lost value in many markets.

In a constantly changing environment, there is always the possibility that a certain industry or product line might fall out of favor, which could prove disastrous for the underlying loan vehicles. Take taxi medallion loans, for example. Now that ridesharing services have become so popular, the bottom has virtually dropped out of this market.  Taxi medallion loans are an example of loans that have recently lost value.

What Has Happened With Taxi Medallion Loan Values Thanks to Uber?

The largely unregulated and disruptive ridesharing industry has turned this nation's taxi industry upside down over the past several years. The financial institutions that underwrite loans for operational licenses, known as medallions, are seeing those assets plunge in value. 

Just as a home's value can depreciate, so can the value of these taxi medallions, which is placing borrowers in an underwater position and prompting many to default. For example, Chicago city records show that the highest price paid for a taxi medallion in 2017 was $100,000, which is down from a peak of $370,000 about four years ago. Four years ago, you might have paid approximately $1.3 million for a taxi medallion in New York, but that cost has now dipped to one-fifth of that to just $241,000.

The default rates on these loans have become such a problem that many lenders are beginning to take massive write-offs. Some examples are:

• Capital One holds approximately 14 percent of all NYC taxi medallion loans, with a value of $390 million. In Q3 2017, they took a $167 million charge-off on these loans and put the entire class in non-performing status. 
• New York Community Bancorp slashed the value of its taxi medallion portfolio from $44.6 million to $272k in Q3 2017 to reflect post-disposition costs. 
• Signature Bank listed loan charge-offs related to taxi medallions in the amount of $229.7 million in Q2 and $98.7 million in Q3 2017.
• Valley National Bancorp indicated in its Q3 2017 results that it carries a $129.3 taxi medallion loan portfolio from the New York and Chicago markets and the bank classifies $40.5 million of those loans as impaired.

Reviewing loan portfolios often with a loan sale advisor can minimize risk.

Monitoring Loan Portfolios in Advance of Potential Value Changes

The lesson learned by many financial institutions over the rise of Uber is to stay vigilant. The consistent monitoring of loan portfolios is essential for positive long-term results because it can allow a bank to mitigate risk. As Uber began to grow its market share in some of these large cities such as New York and Chicago the best course of action would have been to sell some of these loans through a whole loan broker before the bottom dropped out of the market.

Selling as early as possible at the beginning of a downturn is the best opportunity for lenders to book the smallest loss. As long as banks and credit unions take the appropriate markdowns, they are in a unique position to sell the loans and reduce their portfolio risk. The whole loan broker team at Garnet Capital Advisors has over $100 billion in closings and experience with a range of products that include commercial, consumer, and residential loans. 

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