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Auction House vs Banking Art Mortgage Loan Against the City

Time: 2016-07-11         Source: Artron Art Network         Author: Wang Song

Since the rise of the art market in the world, capital intervention in art has always been talked about and widely concerned. In various art financial services, art mortgages can directly and effectively solve bottlenecks in art collection and trading, and become a hot topic at the moment. Nowadays, the global art market, including China, has repeatedly presented a tepid trend – the cautiousness of collectors and the indifference of investors, often leaving the auction house unstoppable. However, capital, especially in Europe and the United States, has quietly focused on art mortgages at this time. Why is this? Sotheby’s, the world’s veteran auction house, seems to have tasted a lot of sweetness. Compared with other auction houses, how do they make a singular relationship with finance?

Art Loans: Business is better than ever

The British Financial Times mentioned in a recent report that although the art market has been sluggish lately, the auction is not very satisfactory, but not all art businesses are doing well – the business of art loans It is better than ever! And more and more funds are still waiting to enter this field. It is reported that Sotheby's has been involved in art mortgage loans since 1988, and its president of Asia, Cheng Shoukang, said that the profit of art loans in 2015 has reached a historical peak. According to data released by Sotheby's, in 2015, the average amount of corporate mortgage loans for the company was 733 million US dollars, an increase of 26% over the previous year. The business brought Sotheby's $65 million in revenue and $4 million in operating profit.

Obviously, art mortgage loans are still a relatively new topic in the mainland. Whether it is a bank or an auction, there are not many real operations. However, the success of Sotheby's, one of the global auction giants, has made peers eager to try, and the banking industry is also gearing up for it. It is reported that several of the world's largest banks, such as Citibank, Morgan and Bank of America, have been involved in this field. According to foreign media reports, there are more European and American banks showing great interest in this. Cheng Shoukang also pointed out in an interview that he was repeatedly asked by his peers about the operation of this field, especially in some auctions and banks in the Mainland, which showed great demand for this business.

It is unavoidable that in recent years, the global and Chinese art market has been in a difficult stage of advancement. The entire market is trading flatly, and the business conditions in all fields of art are lacking. At this time, art mortgages are favored by the majority. According to practitioners in the field of Western art loans, the main reason for the current situation is that the overall economic situation is not optimistic, resulting in more private or institutional collectors needing cash flow. It is precisely because the current art market is not at its peak, and it is better to use it as a collateral to sell its art at a lower price, so as to obtain loans to alleviate the urgency. Cheng Shoukang said in an interview: "The concept of art loan was first raised in the United States in the 1970s. The incentive is that many large families have to generate a large estate tax after the death of their predecessors, and some art works need to be realized. To alleviate the financial tension. Therefore, all kinds of customers who need to obtain loans will provide family collections and hope to get cash support.” Edelman Art Lenders believes that many collectors may have a lot of money in their hands. Hall, Marden, etc. Many of them don't want to convert them into cash in the form of public transactions, because once they don't reach the reserve price of the auction, they can be streamed, which is a harm to collectors or artists. Thus, a form of realisation - art mortgages is even more attractive. Marc Porter, chairman of Christie's former Americas region, also pointed out that it is not surprising that more and more banks and institutions wish to join the art loan in such a period, because the threshold of the business is relatively high, on the one hand On the other hand, financial experience must be an expert in the arts. The uncertainty of the valuation of art has led many capitals to dare not enter. Today, this wall is slowly becoming transparent, and the art market, especially the Western art market, has become relatively fair and rigorous after years of precipitation. At this time, more and more funds will be eyeing this "meat" and it is more reasonable.

In addition to the lack of economical and urgent need for cash flow, Cheng Shoukang also pointed out that as the art market develops in depth, many public and private collectors have a large inventory, although there are still very few museums and art galleries. A large part of the collection is piled up in the warehouse, after all, it is impossible to hang many paintings at home. Rather than having these collections piled up in the warehouse, it is better to take out the mortgage to get cash to make other investments. As time goes by, art is likely to increase in price, especially when the market goes up, the money is used first, and the opportunity for appreciation is not a win-win for the customer. From the perspective of the auction house, Cheng Shoukang said: "This will not only solve the customer's practical troubles, but also provide a way for the auction house to collect and clear. The things that once became collaterals will be directly entrusted to us after the customer thinks for a while. So that we can earn commissions through auctions." Cheng Shoukang told reporters that although this business originated in Europe and the United States, but now Asia also has a large proportion.

Art Loan: Auction Bank PK Bank

Although more and more capital is in the art mortgage, it is now limited to several important auction houses such as Sotheby's and several well-known commercial banks around the world. It is reported that there are also sporadic institutions for testing water in mainland China. However, in general, art mortgage loans have various difficulties. On the one hand, it is difficult to control the valuation of artworks. On the other hand, even if the valuation can be determined, the uncertain factors that the artworks are hard to realize are always the biggest constraint. So there are not many companies/institutions that really participate, and more are still on the sidelines.

There is no doubt that Sotheby’s is the most successful in this operation. The reason, Cheng Shoukang attributed it to, "We provide a one-stop service for art." He analyzed the entire process of Sotheby's art mortgage: "Sotheby's has an independent department to operate, so that Solve financial related issues, such as interest, repayment of loan time. Although Sotheby's is globally stipulated, it is necessary to discuss whether the loan and loan are related to regional experts. For example, there is a big Asian customer to find My Cheng Shoukang wants a loan, I need to tell his complaint to the New York headquarters, let the New York headquarters know: How long I have known this person (who wants to get a loan). How is the relationship with Sotheby's. Is it reliable? The repayment ability. The above information needs to be reported in detail. After all, I know the customer around me the most. Next is to see what kind of collateral he has. If his collateral is Western painting, he may need to go to London or New York Western painting. Experts will come to the trial; if it is porcelain or Chinese painting and calligraphy, it can be directly given a valuation opinion by our department. Finally The amount is 40%-50% of the low valuation. Of course, there is still some room for negotiation in this ratio. But the important point is that what we can borrow must be something that experts think can be cashed through the auction. If it is not a particularly large amount Usually, he is directly loaned to him by Sotheby's. If the amount is particularly large, we may have to use other banks, funds, etc. to issue loans."

Cheng Shoukang stressed: "We are a one-stop service. If customers go directly to bank loans, many banks will take things to find experts to evaluate and convince them to ensure the collateral's liquidity. Customers can't repay on time, and mortgages must be easy to circulate. Of course, banks don't understand the auction process, so they often have to delay for a long time, which is why many banks do not carry out this business. Sometimes, if the customer is in a hurry, if it is fast, the loan has already reached the customer within about one week or 10 days."

For auctions, art mortgages are definitely not just as simple as getting interest from them. “After many people have obtained the loan, not everyone will redeem the item on time. Since the collateral is handed over to us, many people have no interest in this thing, mortgage. I have been giving us for many years, and the money has been invested. If I want to redeem things, the funds will be tight, especially the big collectors. So many times, let us sell them directly. So, both We don't have to continue to repay, we have to sell the extra money to the customer. Perhaps the above situation is more practical for the auction, because the things we can grant to lend must be good things, we feel that there is a future, we can sell the price, This has been done in our previous risk assessment. In addition, the value of the loan is too low, it is meaningless, generally worth about 10 million Hong Kong dollars, you can lend about 4 million to 5 million Hong Kong dollars. In this way, This good thing has entered our warehouse. Our competitors can't take it from me, so it's also good for us to collect goods. Segment. "Chengshou Kang said.

A senior art finance person commented: "The biggest advantage of banks compared to auctions is that interest is relatively low. Because like Sotheby's, most of them add a profit point based on bank interest. But many Bank loans, although providing art collateral, have many restrictive clauses. They may eventually become non-pure art mortgages. For example, banks may feel the dilemma of repayment, or the value of collateral and the ability to produce collateral. Certainty will add to the terms and conditions to freeze your other current assets, such as stocks, bonds and other binding terms. So for the lender, your cost will be higher. Moreover, the most fundamental motivation of the bank is to Interest, but no demand for collection. There is a big motivation, and many banks themselves are not very interested in this business. Moreover, if there is a problem with repayment in the middle, you can’t ask the bank to sell the work and repay the loan. The extra money will be returned to you. There is definitely no flexibility in auction. Unless you really can’t afford the loan, the bank has to go. Selling through other means. This is probably why several big banks around the world have opened this business, but not enough to compete for Sotheby's.

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