What’s Next for Melrose?

February 13, 2017 at 7:30 am 2 comments

Late Friday afternoon, New York’s Department of Financial Services (DFS) announced that it was placing $1.78 billion Melrose Credit Union into conservatorship and appointing NCUA as Conservator.  Melrose is the second state-chartered credit union specializing in making taxi medallion loans to be placed into conservatorship.  Montauk Credit Union was taken over by the DFS with NCUA acting as Conservator in 2015.  While the ultimate outcome of Melrose’s situation remains uncertain, here are some key points to keep in mind. 

Melrose is continuing as a functioning credit union.  The regulatory purpose of a conservatorship is to give regulators the authority to take over management of an institution and resolve “immediate problem areas and document[s]. . .prospects for the credit union’s future.”  See Examiner’s Guide Section 29-14.

In making the announcement, neither DFS not NCUA would put a timeframe on how long the conservatorship would last.  But, according to NCUA’s Examiner’s Guide, NCUA aims to have conservatorships completed within two years whenever possible.

NCUA and DFS now have broad powers to address the issues confronting Melrose.  For example, if the best option is a merger, NCUA’s Chartering and Field of Membership Manual stipulates that an emergency merger can be approved without regard to field of membership constraints.  NCUA would be primarily concerned that any merger into a continuing credit union, if possible given Melrose’s size, took into consideration the financial strength and management ability of the continuing credit union.  We saw this approach play out when Bethpage took over Montauk. 

Like Montauk, Melrose is one of the only remaining open charter credit unions in the State.  As explained in this 2002 Legal Opinion Letter, credit unions granted such powers prior to a 1929 revision of state law have the authority to permit membership without regard to common bond requirements.  When Bethpage acquired Montauk, it acquired Montauk’s open charter.

No doubt the banking industry will seize on Melrose’s troubles as an example of problems with the industry writ large.  But Melrose’s problems are nothing more or less than the lightening quick speed with which technology is now making business models obsolete.  As recently as 2014, medallions sold for over $1 million.  Today, the price has fallen dramatically.  The cause of this decline in New York Medallions is a San Francisco based computer company, Uber, which wasn’t even formed until 2009. 

 

Entry filed under: General, New York State, Regulatory. Tags: , , , .

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2 Comments Add your own

  • 1. Keith Leggett  |  February 13, 2017 at 7:49 am

    Henry:

    While an emergency merger is possible, there are only a couple credit unions able to absorb this institution and not have a problem.

    The immediate problem facing Melrose is liquidity. During the fourth quarter, the credit union had a $102 million outflow of deposits. Cash fell by approximately $124 million in the fourth quarter. As of December 2016, the credit union only had $58.6 million in cash.

    Its cash plus short-term assets to total asset ratio was 3.92 percent.

    Reply
  • 2. Uber Claims Another CU | new york's state of mind  |  June 27, 2017 at 9:02 am

    […]  becomes the third NYC based CU specializing in taxi medallion loans to be conserved following Melrose and Montauk, which was merged into Bethpage […]

    Reply

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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