It's no secret that Medallion Financial (NASDAQ: TAXI) is one of the largest taxi medallion lenders in the country. Even with a growing consumer loan portfolio, medallion loans make up 46% of its "total managed balance sheet" assets, which includes investments in its unconsolidated subsidiaries. 

Recently, taxi medallions have come under pressure. Prices have dropped in key geographies like Chicago, Boston, and New York City, markets where Medallion Financial has a presence.

There may be a shifting tide behind the scenes, too. Banks are becoming less willing to finance taxi medallions, and loans against medallions -- like medallions themselves -- aren't selling.

One bank seeks an exit
On its third-quarter conference call, New York Community Bank (NYSE: NYCB), one of the best underwriters in the country, announced that it was selling its medallion loan book with the expectation that a deal would close in the following quarter.

By the next conference call, however, executives at New York Community Bank changed their tune. The company announced that it had marketed its medallion loans, but the transaction didn't close. Joseph Ficalora, the company's CEO, noted that he had hopes that it might sell the loans in 2015, but if it can't, then New York Community Bank will hold the portfolio until it runs off. Notably, its executives pointed out twice, in two separate calls, that all of the medallion loans were currently performing. This isn't a low-quality portfolio.

It's an interesting development, and one that provides some insight into a lending universe that is relatively small, and not well followed. New York Community Bank put a medallion loan portfolio up for sale, found a buyer, but didn't close the deal and isn't sure if it can or will sell the portfolio on favorable terms at all. And all this happened in the last nine months.

What does it mean for Medallion Financial?
First, I think we can reasonably say that these loans are not materially different from Medallion Financial's. Based on the back-and-forth from its conference calls, the loans are 100% performing, and they have a two-year average life, which suggests they were written with balloon payments and interest rate resets. Medallion Financial recently started writing more balloon loans with one-to-three-year terms and interest rate resets.

Second, I find it telling that a high-quality lender like New York Community Bank wants out of the medallion lending business. Given that this appears to be a portfolio that would normally fall off its balance sheet in two years as the loans are refinanced by other lenders, or repaid by the borrower, New York Community Bank's attempt to sell in the here and now suggests it feels uneasy about its medallion exposure.

Which makes me wonder: If one of the best underwriters in the country cannot close on a marketed deal for its medallion loan portfolio at a reasonable price, what is the market-clearing price? Is it a 5% discount to par? 10%? Is there no secondary market for medallion loans at all?

Whether or not New York Community Bank can part with its portfolio should give Medallion Financial investors a clue as to banks' interest in medallion lending. Medallion Financial marked its loans at principal value as of Dec. 31, 2014, but New York Community Bank's failed sale suggests that medallion loans might not be worth full value in the market today. What they're actually worth is anyone's best guess, but evidence suggests it's something less than face value.

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Jordan Wathen has no position in any stocks mentioned.

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