NEW YORK—One analyst is projecting NCUSIF losses from taxi medallion CUs will range from $7.4 million—base-case scenario—to $400 million worst case.
Keith Leggett, the former senior vice president and senior economist at the ABA, provided that analysis on his Credit Union Watch blog, also stating that at the low end of losses one more CU would fail and two more would be shuttered if losses reach the high end of the estimate.
Last year NCUA liquidated one taxi medallion CU, Montauk CU.
Leggett stated that earlier this year, research by Morgan Stanley estimated a base case cumulative loss rate on taxi medallion loans of 25%. Morgan Stanley assumed a worst-case loss rate scenario of 50% and a mid-range loss rate scenario of 38%.
“Applying these scenarios to the three New York City taxi medallion lending credit unions will provide estimates of the potential loss to the NCUSIF from taxi medallion loans,” said Leggett. “This analysis is static. It only looks at the equity and allowance for loan and lease losses (ALLL) for the three credit unions as of June 2016 and determines if equity and ALLL are sufficient to cover the estimated losses on the taxi medallion portfolio at these three credit unions.”
Leggett noted that the analysis does not look at credit unions that have participated in taxi medallion loans.
“Under the base-case scenario, the loss to the NCUSIF appears to be manageable at $7.4 million. Only one credit union would fail, as its losses on medallion loans would exceed its equity plus ALLL. Another credit union would be crippled and likely merged,” said Leggett, who provides detailed analysis here. “Under the worst-case scenario, the aggregate loss to the NCUSIF from taxi medallion loans would approach $400 million with two credit unions placed into receivership.”
As CUToday.info previously reported, capital at the $1.9-billion Melrose Credit Union has now dropped below levels that would require Prompt Corrective Action (PCA). Melrose has been suffering losses as a result of the decline in values of taxi medallions, which make up the bulk of its loan portfolio, as a result of services such as Uber and Lyft.
According to the Financial Times, new numbers from Melrose show delinquencies rose 17% between April and June of 2016 to hit $435 million. The credit union has also had to restructure $359 million worth of loans, reported the Financial Times, and its losses were up tenfold from $5.6 million at the end of Q1 to $57 million at the end of Q2.
As a result, Melrose Credit Union’s net worth ratio has declined to 7.49%, down from 19.22% three years ago and beneath a required level of 9.89%, according to the Financial Times.
The declining capital will require Melrose to submit a net worth restoration plan to NCUA.