Cabbies aren’t the only ones feeling the heat from Uber Technologies Inc.’s incursion into New York City. Their lenders are, too.
Taxi companies typically borrow against the value of medallions — licenses to carry passengers — and then refinance the loans before they come due. Citigroup Inc. is trying to foreclose on 89 medallions, New York Community Bancorp Inc. put its taxi-loan portfolio up for sale, and credit unions with a combined $2.5 billion in medallion loans are suing the city for failing to stop Uber from stealing customers. Amid the turmoil, the value of a medallion has sunk to $770,000 from $1.1 million in 2013, according to data from the New York City Taxi & Limousine Commission.
“It’s very hard to find new financing for the medallions,” said Alexander Twerdahl, an analyst with Sandler O’Neill & Partners LP in New York. “As the banks are pulling back from the industry, I think they’re only hurting themselves. And they’re hurting the industry more.”
Competition from New York’s 26,000 Uber drivers has driven down meter revenue for the city’s 13,600 medallion holders and their 50,000 operators. The breakdown of the $15 billion New York City taxi industry that began with Uber’s arrival four years ago continues with lenders pulling their support.
“This is not hyperbole,” said Todd Higgins, a co-founder of Crosby & Higgins LLP who’s representing the credit unions. “The numbers very clearly show that the medallion market has seized and that the industry is already collapsing.”
For many years, taxi medallions were a better investment than gold. Between 1980 and 2013, values soared more than 1,000 percent while gold gained 181 percent. The medallion’s reliable cash flows meant lenders clamored for access to the industry.
All that changed with Uber, which matches drivers with riders using a mobile-phone application. The company’s decision a year ago to cut prices on its UberX service in New York attracted more drivers and sparked the slump in medallion prices, according to Bloomberg Intelligence analyst Harvey Lei.
New York Community Bancorp said last year it would try to sell its $200 million taxi medallion lending business. It has yet to find a buyer. The bank said it wanted to sell the portfolio to keep its assets below the $50 billion threshold that triggers increased regulatory scrutiny. The lender took the portfolio off the market due to what it called market disruptions, and said that none of the loans have defaulted.
Panic would be premature, Twerdahl said. By his count, only about 500 of the city’s medallions, or about 3.7 percent, are trading below their purchase price. That means that if banks foreclose, losses would be “insignificant,” he said.
Still, the New York Supreme Court said last month that Citigroup’s retail subsidiary could seize 89 medallions, valued at $31.5 million, from taxi tycoon Evgeny “Gene” Freidman, who buys medallions through companies with names like Bombshell Taxi and Vodka Taxi. Andrew Brent, a Citigroup spokesman, said legal action is “a last resort” and only comes after “repeated attempts” to help clients.
Freidman, who says he “bleeds yellow” for New York City, has called on regulators to better shield the city’s taxi industry from the threat of companies like Uber. “New York must stand up to the hostile takeover being attempted by a Mafia-like Silicon Valley, in conjunction with predator banks,” Freidman said in a statement last month.
An Uber spokeswoman declined to comment.
Ethan Gerber, executive director of the Greater New York Taxi Association, said Freidman and Citigroup have resolved conflicts over 43 of the 89 medallions. A final hearing for the case is scheduled for Aug. 6. “We have more of a problem with the lenders than we actually do with this revenue stream,” Gerber said. “The medallions are still profitable. They’re still getting drivers out. They’re still making money.”
Melrose Credit Union, Montauk Federal Credit Union, Progressive Credit Union and LOMTO Federal Credit Union — groups based in the New York area that together made about $2.5 billion in medallion loans — are suing the Taxi & Limousine Commission, the city and others for failing to stop Uber from violating the medallion owners’ exclusive right to street hails, according to court documents.
“We have openly welcomed new technologies and dynamics to the local market,” said Allan Fromberg, a spokesman for the Taxi and Limousine Commission. “While there is what amounts to a difference of opinion on the definition of a ‘street hail’ currently in litigation, the TLC will continue to vigorously defend the public’s right to choose among the various transportation options available to them.”
Without immediate action from the city, cab companies would fall behind on their loan payments, imperiling their lenders, the credit unions said in the petition filed last month. “You’re talking about financial institutions failing,” said Higgins, their lawyer. “And there’s no such thing as painless financial failure.”
–With assistance from David Scheer in Seattle.
This article was written by Jennifer Surane from Bloomberg and was legally licensed through the NewsCred publisher network.