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Art as collateral

Collectors use art to raise funds as liquidity dries up

London

Increasing numbers of collectors are using fine art as collateral against loans since the financial crisis began last September, with specialist New York banks predicting a 40% growth in the sector this year.

“There’s a desire for liquidity out there that commercial banks are not meeting today,” Bair Ryan, managing partner of the Art Capital Group, told The Art Newspaper. “There are a lot of collectors who have tens of millions of dollars in fine art, which has been seen as a non-performing asset.”

While some collectors maintain that they are borrowing in order to buy more art, Mr Ryan says he believes most have business or personal debts. “We are distressed debt players in some ways.”

The commercial banks which have offered art advisory services through their private banking departments in recent years appear to have little appetite for this business, while the Swiss bank UBS closed down its art advisory service at the end of March, and Sotheby’s and Christie’s have withdrawn from offering guarantees against auction sales. This has diverted business to the specialist banks, which can provide a loan and then manage the sale of the art, often working with the auction houses. “We see these as front-loaded sales,” Mr Ryan said.

Meghan Carleton, a partner in Art Finance Partners, said art loan interest was currently between 12% and 20%; usually, collateral exceeding the value of the loan is placed into storage.

“There are default situations, but we try to maintain a relationship with our clients and strategise with them to sell the collateral,” she said. “This is not a loan shark operation.”

High-profile alleged defaulters include Lawrence Salander (see above); according to the case against him, Salander secured a $2.1m loan from Bank of America against two Arshile Gorky paintings, Pirate I and Pirate II, that he did not own.

o See comment, see p39

Appeared in The Art Newspaper Archive, 202 May 2009