Any attempted sale of New York taxi medallions by the Feds will destroy the market for taxi medallions. At the current sales rate it would take centuries for the market to absorb these sales.
Mark to market valuations for ALL Big Taxi lenders for the quarter ending March 31, 2017, MUST include this event as part of their ASC 820 evaluation process.
The Melrose Credit Union of Briarwood, New York has $1.7 billion in assets including $1.5 billion in taxi medallion loans. Melrose was managing more than 3,000 taxi medallion loans, for an average outstanding balance of $500,000 per taxi medallion.Virtually all medallions held as collateral are New York taxi medallions.
On February 10, 2017, the New York State Department of Financial Services (DFS) took possession of Melrose Credit Union and appointed the National Credit Union Administration (NCUA) as conservator. The NCUA explains what the conservatorship means in its press release and in this FAQs document
The takeover was due to the failure of Melrose to address the requirements of a consent order issued on July 3, 2016 based on an examination by state and federal regulators for the fiscal year ending on December 31, 2015.
The consent order cited the undercapitalized credit union for its unsafe and unsound practices, alleged violations of laws and regulations, and significant supervisory concerns.
Those areas that Melrose was required to address in the consent order included loan policy deficiencies, the funding of an allowance for loan/lease losses shortfall, and a concentration reduction plan for its $1.5 billion taxi medallion loan portfolio that was underperforming because of fierce competition from ride-sharing services such as Uber and Lyft.
An article on the takeover:
Melrose Credit Union Placed into Conservatorship Under the NCUA
Another article is included below.
New York’s tenth largest credit union by assets, the $1.7 billion Melrose CU, was placed into conservatorship Friday by the New York State Department of Financial Services, which appointed the NCUA as the conservator, according to the federal agency.
The state regulator took possession for Melrose CU in Briarwood because of its unsafe and unsound practices initially identified during a an examination by state and federal regulators in 2015. That examination revealed alleged violations of laws and regulations, and significant supervisory concerns, leading the state regulator to issue a consent order against the undercapitalized credit union.
Those areas that Melrose was required to address in the consent order included loan policy deficiencies, the funding of an allowance for loan/lease losses shortfall, and a concentration reduction plan for its $1.5 billion taxi medallion loan portfolio that was underperforming because of fierce competition from ride-sharing services such as Uber and Lyft. Melrose was managing more than 3,000 taxi medallion loans.
Apparently, Melrose was unable to resolve the consent order’s laundry list of violations and other internal operational issues as the credit union’s financial losses continued to mount throughout last year.
At the end of 2016, Melrose CU posted a net income loss of $98.6 million, which was a much lower loss than at the end of 2015 when the credit union posted a net income loss of $176 million.
From the end of 2015 when Melrose’s loan delinquencies totaled 7%, it loan delinquencies shot up to double digits throughout 2016. At the end of the first quarter, the credit union posted loan delinquencies at 18% and they continued to climb up to 28% by the end of last year, according to NCUA’s financial performance reports.
Melrose’s net worth plunged to 5.73% at the end of 2016 from 10% at the end of 2015. Its ROAA was -5.33% in the fourth quarter of last year compared to an ROAA of -8.86% at the end of the fourth quarter of 2015.
Melrose first became undercapitalized after its second quarter 2016 Call Report was released by the NCUA.
Melrose posted a net worth of 7.49% at the end of the second quarter compared to its net worth of 18% at the end of the second quarter of 2015.
However, because Melrose is considered to be a complex cooperative by the NCUA, its risk-based net worth requirement was 9.89%, which classified credit union as undercapitalized.
The undercapitalization placed Melrose into prompt corrective action and it was required to submit a net worth restoration plan to the NCUA.