MFIN - Medallion Financial Corp.

[Guest Schwab711]

It's probably not a good sign when a lending institution doesn't understand fractions.

[permabear]

Hahah, they just did it again. Q3 2016 three months total return of... drumroll please.....

Negative 168%!

[Guest Schwab711]

Haha that's so great. Medallion Bank written up again despite the cut in dividends and continued acceleration of medallion NPLs (28.6% for reported medallion loans). If this is representative, they are insolvent.

 

This is almost always step 1 to losing a lot of money ignorantly or purposefully. The puts are implying a likelihood of no refinancing that is concerning for a bank holding company. I hope this is resolved by the market before the FDIC steps in. Good luck on your short. I wish I had the stones to short this here.

 

There will likely be fiduciary charges before all is said and done.

[permabear]

@Schwab711 Cheers! Keep an eye on this one, it is going to be interesting. They just defaulted on a $9m loan secured by Chicago medallions in October (no disclosure when it happened, just reported it in their Q released today), they are trying to amend/extend +1 year a similar loan for $14m due this month and their revolving line of credit (used exclusively to initiate/buy medallion loans) in the amount of $108m is due in December.

[permabear]

I hope this is resolved by the market before the FDIC steps in.

 

Look what I found buried in the Risk Factors section of the latest Q... looks like FDIC is already involved here

 

"As a regulated entity, Medallion Bank is subject to periodic routine examination from its regulators. Medallion Bank is currently undergoing such an examination, and while the final results of the examination are unknown at this time, it is possible that the regulators could require additional loan loss reserves or other financial adjustments at the Bank. While this would be, if it occurs at all, a subsequent event to our current regulatory filings, it is possible that the regulators could require the Bank to record any adjustment as a restatement of the Bank’s previously filed regulatory reports, resulting in certain of the supplemental Medallion Bank disclosures in this Form 10-Q to differ from the adjusted numbers. The Company would assess as appropriate any such restatement to the Bank’s regulatory reports and its effect, if any, on the carrying value of Medallion Bank, and if there is no material change on the carrying value there would be no change required in the Form 10-Q."

[permabear]

I wrote up MFIN (fka TAXI) for anyone interested

- On Seeking Alpha: http://seekingalpha.com/article/4024104-medallion-financial-failed-taxi-empire-crash-course-creditors

- On SumZero: https://sumzero.com/pro/research/ideas/12944

[permabear]

I wrote up MFIN (fka TAXI) for anyone interested

- On Seeking Alpha: http://seekingalpha.com/article/4024104-medallion-financial-failed-taxi-empire-crash-course-creditors

- On SumZero: https://sumzero.com/pro/research/ideas/12944

[permabear]

A few articles to get you up to speed on the MFIN (fka TAXI) situation.

 

The first one is a winding tale of how the company hired a NYC fashion model to head investor relations, and post highly promotional articles on Huffington Post and comments on Seeking Alpha and Yahoo Finance under a pseudonym. The article highlights this is a potential securities law violation; it is also just plain stupid. Enjoy!

 

[*]Fashion model turned cab finance company promoter takes Medallion Financial investors for a ride - Debtwire Jan 27, 2017 - http://www.debtwire.com/info/2017/01/27/fashion-model-turned-cab-finance-company-promoter-takes-medallion-financial-investors-ride/

[*]Medallion Financial Becomes House Of Cards As Ride-Hailing Apps Hammer Yellow Taxi Market - Forbes Jan 3, 2017 - http://www.forbes.com/sites/debtwire/2017/01/03/medallion-financial-becomes-house-of-cards-as-ride-hailing-apps-hammer-yellow-taxi-market/#55584bba7081

[*]Medallion Financial: Failed Taxi Empire On A Crash Course With Creditors - Part II - Seeking Alpha Dec 20, 2016 -  http://seekingalpha.com/article/4031657-medallion-financial-failed-taxi-empire-crash-course-creditors-part-ii

 

 

 

 

 

[Junto]

It's been a long haul on this investment but some positive momentum here lately.  Still long and expecting to ride this higher as the consumer loan profits cover the medallion losses.

[petec]

It's been a long haul on this investment but some positive momentum here lately.  Still long and expecting to ride this higher as the consumer loan profits cover the medallion losses.

 

Do you believe book value is sound here?

 

EDIT: I’ll rephrase that. Do you have an estimate of what BV will be on Monday when the first set of post-reorg figures are out?

[petec]

Here's my rough and ready assessment of what the combined entity will look like based on q1 10q:

 

- Equity at the bank is 154-26 in prefs = 128

- Other controlled subsidiaries is 11

- Everything else is 272 reported equity less 331 bank and other = -59

- Total equity 128+11-59=80

- 150/80=1.88 P:BV

- For that you get

• 1,129 in loans:

○ 717 consumer loans making 50% pretax ROE (40% net)

○ 93 mezzanine loans making >20% ROE

○ 319 (split 160/160) collateralised and personally guaranteed medallion loans written down to c. 180 per loan vs current prices 230 => potential writebacks as they improve collections and/or prices rise given new PE capital coming into the industry (recent portfolio sale) and increased checks on Uber in NYC.

• 160 in other assets

• Total assets 1290

• Borrowings 1170, 30 in other liabilities (= equity 90 not 80 likely due to rounding).

- Estimating recurring earnings:

• Net interest income of 7% (last press release) on the loans implies $79m of net interest income.

• Loan loss provisions guesstimate: 2%*1129=22. Consumer and mezzanine are currently running at 2% and consumer peaked at 6% in 2008-9.

• Total 1q18 annualised opex (including bank) is 44.

• 79-44-22=13 pretax.

• 13*0.8=10.4 recurring NI.

• 10.4/80=13% ROE

• 150/10.4=14.4x PE

- Conclusion: the bank is on the books for 2.5x book which really distorts the headline p/bv of the wholeco. P/BV will therefore rise dramatically tomorrow when they report the combined entity. Even on earnings and using a top-of-cycle provisions estimate for consumer this is not particularly cheap. For it to work you need continued high growth in consumer, a turn in medallions, and/or a fat medallion servicing fee stream at 2/20 as discussed on the call.

 

Where am I wrong?

 

EDIT: looks to me like their cost of funding is about 1.7%. I was hoping there was a chance to reduce funding costs as they right the ship but that feels low to me. And NB cost of funds is short term i.e. floating while the main portfolio, consumer, is fixed. Does this struggle in a rising rate environment?

 

[Beardog]

Looks like tangible book value $1.91 per share, or 3.2x p/tbv on the $6.10 closing price.

 

If the pitch is they transition to a subprime consumer / mezzanine corporate lender going forward, what's the appropriate multiple?  Hard to see anything >1.5x imo (particularly b/c I'd guess those loans are under-reserved for on the books today).