Signature Bank (SBNY) - Thoughts

Investment Analysis Clubs Saul’s Investing Discussions
1

Additional thoughts about Signature Bank’s taxi medallion loans:

For about the past 70 years New York taxi medallions were about the safest investment in the world. I even remember that from when I was a kid in NYC. The value of medallions only went up as there was a strictly limited number of New York cabs (about 11,000-12,000), and demand for cabs kept going up and up. The price for a medallion was well over a million dollars a couple of years ago. For one medallion! The right to have one cab!

Signature Bank, as a New York business bank, made a VERY conservative set of loans, loaning money on taxi medallions, mostly in NYC, but some in Chicago as well, for a few percent of their total loans.

Then a black swan event came along! It was called Uber, which put what are essentially un-licensed cab drivers on the street with no entry fee at all. The value of New York medallions dropped to about $600,000 from over a million, almost overnight.

The New York market has stabilized and SBNY sells their foreclosed medallions for $600,000 or more in auctions. Chicago, which was less regulated, has fallen off a cliff. SBNY has said, Okay, we’ll write down our Chicago loans to just $60,000 a medallion, which is all they are worth, post-Uber. They did that this quarter. The remaining exposure on Chicago medallions is only about one tenth of one percent of their total loans. NY medallions are 2% of total loans, and this percent is constantly falling as their loan book increases. Outside that 2% in medallion loans, they have $26 billion out on loans and less than 0.1% (a tenth of one percent) of that $26 billion is in non-accrual! Loans and deposits are growing rapidly, their efficiency ratio is even lower than branchless banks like Bofi, book value is growing very fast (up about 18% from a year ago).

They have weathered the unexpected black swan event very well.

Just my opinion.

Saul

For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.

A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board

22 Likes
2

Thanks for your thoughts on this, Saul.
I guess the big question is, aside from NYC and Chicago, are there any other cities where this same issue could arise?

1 Like
3

I guess the big question is, aside from NYC and Chicago, are there any other cities where this same issue could arise?

Signature Bank has zero exposure to taxi medallion loans outside of NYC and Chicago.

1 Like
4

From my perch, it appears to be a compelling time to buy SBNY. No position yet.

As a Chicagoan, Uber has had an enormous impact on the old school taxi market that is now reflected in the going rate for medallions. The value of medallions in Chicago seems reasonable based on the disruption Uber has caused. So, I like how SBNY has almost completely written those off the books.

The value of medallions in New York at $600,000 may very well be correct for today, but one wonders how much further ride sharing services can erode the value of medallions further. I will say there is a difference using ride sharing in Chicago versus New York although I’m not sure I can explain it well. Maybe it is the sheer number of cars in New York making it difficult to find your specific ride service. Maybe it actually takes human know how to get around New York well versus relying on GPS. I can tell you that I always give direction to my Uber driver, even in Chicago, as they never know the best route.

So, my gut tells me that New York is not quite as ripe for complete disruption by ride sharing services. It is good to see SBNY has written the NYC medallions down to their current going rate or less. Hopefully, those medallions hold their value for the sake of SBNY.

Just rambling about the risk of NYC medallions that still may be lingering, but definitely interested in taking a position in SBNY now. Will keep doing some further reading.

Take care,
A.J.

6 Likes
5

So was it that they wrote down the NYC medallions last quarter, and we thought that would be all we would see of medallion write downs?

And now, they ended up writing down their Chicago medallions this quarter (unexpected by those of us here, well, me, at least)?

…stringing me along for one more quarter.

6

Actually, I don’t think that is true. They have sued Gene Friedman in NYS Supreme Court over unpaid loans that reference taxi assets in Chicago and Philadelphia. It is unclear exactly how many Philly medallions are covered by the loans, but prices there seem to have declined at least as much as those in NYC.

I don’t think medallions are going to sink the boat here, but there is probably more downside on NYC medallions. BKU marked theirs down this Q due lower trips per cab in the first six months of the year.

3 Likes
7

They have weathered the unexpected black swan event very well.

So the assumption is that it is over? NY has bottomed at $600K per medallion? Don’t be so sure. Unless NY bans Uber, there can still be plenty of more trouble. As I pointed out when the stock first came up, there are people that own dozens or more of these, one guy was known as the taxi billion because that was his worth before Uber: $1M/medallion and he had 1000 medallions. How? Like a slumlord - lots of leverage. One was used to buy the other. So, when realestate crashes and rent goes down and your rental unit decreases in cost and you can’t make the payments, the bank repossess or you sell, both of which exacerbate the spiral down. Will it hurt SBNY a lot? Maybe not, but I bet $600K is not the bottom of the market.

If cab drivers stop renting a cab from the medallion owner for $100/day and start driving Uber, more black swans might start hatching.

10 Likes