Managing Medallion Markets Through Manipulation

Readers:

I’d like to introduce you to Ken Hashemi. He owns Boston medallion #995.

Ken and I disagree a lot about Uber. He hates Uber as much as I love Uber.

However, he’s interested in telling his story about how Uber is killing the medallion taxi industry and the effect it’s had on the value of his medallion.

The most recent sales in Boston publicly transferred at $405,000 and$410,000. I believe these were not arm’s length transactions and were arranged to allow Medallion Financial (NASDAQ:TAXI) and other lenders to continue to value their loan assets above prices that represent willing buyers and sellers.

Ken’s dad bought the medallion in 1991 for $80,000. On April 13, 2015 the medallion was transferred for stock only to Ken Hashemi (dba KHZ LLC) from Mirmehdi Hashemi-Zonouz (dba MHZ LLC). There was no lender at closing and Ken remains as the owner outright with no lien on his medallion.

Ken knows he’s a long way from the spring 2014 peak of $700,000 in Boston. He is realistic.

By June 30, 2015, Uber had reduced Boston taxi medallion revenue by 25% from spring 2014.

In July 2015, Ken began looking for a buyer because “as an owner-operator I’m tired of driving my taxi at a time when my business income has dropped more than 30% compared to last year.” Unlike many owners of single medallions, he has no loans or other liens. All of his net proceeds would go into his pocket.

He rejected an offer for $200,000 from a taxi driver he knew.

Ken then hired Gary Lavitman as his broker. Lavitman is the founder of the 617-TAXICAB radio association, one of only seven associations licensed in Boston. As the industry worsened, Lavitman had to subsidize operations to keep it afloat. After Uber’s market entry began to devastate the medallion industry in 2014, he had to sell his business at a steep loss. Lavitman is now driving a cab himself to pay his debts.

Lavitman arranged to have a well-known leader of Boston’s taxi industry buy the medallion. However, when Ken signed some paperwork he read that, unknown to him, Lavitman was taking a $30,000 commission.

Ken was outraged and balked. Negotiations went back and forth. Lavitman cut his commission in half to $15,000. In the end, Ken signed a purchase and sale agreement for a net $265,000 on August 20, 2015.

Yet the deal never closed. The buyer walked away without ever giving a reason.

Afterwards, Ken contacted a well-known auctioneer who also told him a market-clearing transfer price would be between $250,000 and $300,000.

HOWEVER, the auctioneer told Ken to “wait until the market gets better”. Ken followed up a few times, but never got a return call.

I suspect the goal of the interaction was for Boston taxi insiders to know what the REAL market-clearing price was.

Meanwhile, Medallion Financial (NASDAQ:TAXI) uses the $400,000 transfer “price” to prove the value of their Boston loan portfolio.

What’s going on here?

Is it the same as what’s going on in Chicago?

In Chicago, medallions have transferred at $150,000. One transfer was at $240,000, so TAXI and Signature Bank (NASDAQ:SBNY) conveniently choose the $240,000 transfer to mark-to-market.

Who is this guy who paid $240K?

The dumbest guy in Chicago?

Who are the two guys who paid $400,000 in Boston?

The two dumbest guys in Boston?

Q3 came and went. TAXI and SBNY moved their mark-to-market values down less than 1% to $238,500.

Deciding he wanted to try selling again, Ken listed his medallion on DriverZoo.com for $270,000 on October 18, 2015. He received ZERO contacts. He is now considering his options for prices and when to sell. He believes at some point regulators will come down on Uber and restore the health of the medallion taxi industry.

Readers: of course you’re all aware I believe strongly this will never happen. I’m not alone in this forecast.

At Ken’s contractually agreed upon price in August 2015, Boston medallions have lost 62% of their value over the fourteen months since June 2014.

Who thinks we’ve scraped the Boston Bottom?

As I’ve testified at public hearings, Uber has already won the battle in Boston. Whatever the market-clearing transfer price is in November 2015 for Boston medallions will never be seen again.

As I’ve also testified at public hearings the process has been tragic for Boston owner-operators driving behind the wheel for 60 to 70 hours a week struggling to make loan payments for an asset with precipitously declining value.

In SEC filings, TAXI claims their average loan to value (LTV) ratio is 75%.

That might be the truth for the inflated valuations in Chicago at $240,000 and Boston at $400,000.

A Chicago loan of $180,000 has a 75% LTV of $240,000.

A Chicago loan of $180,000 has a 120% LTV of $150,000 and is underwater.

A Boston loan of $300,000 has a 75% LTV of $400,000.

A Boston loan of $300,000 has a 111% LTV of $270,000 and is underwater.

How many stockholders know they’re drowning in hundreds of millions of dollars of underwater medallion loans?

TAXI and SBNY management better find a lot more dumb guys, otherwise they can’t honestly value their loan portfolios using these inflated prices.

Maybe its time to tell stockholders and borrowers the truth about what’s going on in Chicago and Boston.

 

 

 

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One Response to Managing Medallion Markets Through Manipulation

  1. Pingback: Ruining Medallion Borrowers is Ruining Communities | Sharing Opinions

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