Berko: Medallion on its way out thanks to Uber

Dear Mr. Berko: I bought 400 shares of Medallion Financial Corp. in May 2012 at $11 a share, and the stock price had risen to $18 by January 2013. I wrote to you about buying more shares when it fell to $15 in February 2013, and you told me to sell the stock “quick as a bunny.” I apologize for my nasty attitude with you then; I was wrong. I need your advice again. We just retired and moved to Florida, so my address is different. Please tell me what to do, because Medallion is now selling at $2.26 a share. I think I may have lost it all.

— A.L., The Villages, Fla.

Dear A.L.: What I don’t understand is why you are writing to me for advice when you wouldn’t take it from me four years ago.

Medallion Financial (MFIN) shares traded in the $30s a decade or so ago. As you mentioned, they traded at $18 a few years ago, and you’re well aware that today your 400 shares of MFIN are worth $2.26 apiece. Revenues and earnings have fallen, and the dividend, which was recently 25 cents, is now zero. MFIN has been in a definite downturn since January 2013. I told you to sell it because a company called Uber might put MFIN out of business.

MFIN is a specialty finance company originating consumer loans for the purchase of recreational vehicles, boats, motorcycles, trailers and small-scale home improvements. That’s an excellent business today. However, MFIN’s biggest business was making loans to finance taxi medallions, which just a few years ago were selling at about $1 million each. Few drivers own medallions.

They are primarily owned by the companies that operate fleets of taxis (one medallion per taxi). In mid-2005, according to my source, the value of all taxi medallions in New York City was nearly $17 billion, and in Chicago, they totaled about $2.6 billion, thanks to an artificial scarcity created by city governments. Now, thanks to Uber and Lyft and other ride-hailing services, the value of these medallions has fallen to as low as $250,000. In 2015, there were 13,600 cabs in New York City. However, competition from 21,000 Uber cars — which are cleaner, comfortable and more easily summoned — has severely wounded the taxis’ customer base. Then, adding salt to the wound, it seems that many taxicab drivers now prefer to work for Uber. This leaves a growing number of cabs, bearing those costly medallions, sitting idle. Last year in Manhattan, Uber gained 3.82 million pickups, while independent cabs lost out on 3.82 million rides.

The plunge in medallion prices has caused a financial crisis among cab owners. In the past, cab/fleet owners took out multimillion-dollar medallion loans. And those loans were easy as pie because owners could show that medallion prices continued to rise. Now MFIN is hurting badly as medallions that were financed short term (usually three to five years) are coming up for renewal. Many loans can’t be renewed because their values are significantly less than the current loans made several years ago. Borrowers are just too far behind the eight ball. Now MFIN has hundreds of millions of dollars’ worth of dubious medallion loans on its books. And a 35 percent loss in the value of those medallion loans would completely wipe out MFIN’s equity cushion.

Thomson Reuters, Market Edge, Sandler O’Neill and Standard & Poor’s have “sell” recommendations on MFIN. However, I should note that Alvin “Big Al” Murstein, MFIN’s chairman of the board and CEO, bought 200,000 shares Dec. 8. And a few months earlier, Lowell Weicker Jr. — an MFIN director, a former presidential candidate, a former U.S. senator and a former governor of Connecticut — bought 900 shares of MFIN at $3.47 each. But I think they are tilting at windmills.

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