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Auction House VS Bank Art Mortgages Hot Against the City

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

Since the rise of the art market in the world, capital intervention art has always been talked about and paid attention to. Among the various art financial services, art mortgage loans can directly and effectively solve bottlenecks in the collection and trading of artworks, and become hot topics nowadays. Nowadays, the global art market, including China, has repeatedly exhibited a tepid trend - the cautiousness of collectors and the indifference of investors, often leaving the auction house unobtrusive. However, capital, especially some European and American funds, has been quietly eyeing the mortgage of artworks at this time. Why is this? Sotheby's, the world’s oldest auction house, seems to have tasted a lot of sweetness, and compared to other auction houses, how they are tied to the financial incense.

Art Loans: Business is Better Than Ever

In the latest report, the Financial Times of the United Kingdom mentioned such a phenomenon: Although the art market has been very sluggish recently, the sale of auctions is not very satisfactory. However, not all artistic 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. Cheng Shoukang, president of Asia, said that the profits of art loans in 2015 had reached a historical peak. The data released by Sotheby's shows that: In 2015, the average amount of company-wide mortgages for works of art was US$733 million, an increase of 26% over the previous year. This business brought $65 million in revenue and $4 million in operating profit for Sotheby's.

Obviously, art mortgage loans are still a relatively new topic in the mainland. No matter whether it is a bank or an auction, only a few of them really do this operation. However, the success of Sotheby's, one of the world’s leading auction houses, has made its peers eager for success, and the banking industry has been gearing up for it. It is reported that several relatively large banks such as Citibank, Morgan and U.S. Bank have all involved in this field. According to foreign media reports, more European and American banks have shown full interest in this. Cheng Shoukang also pointed out in an interview that he was repeatedly asked by his colleagues about the business situation in this area. In particular, some auctions and banks in the Mainland have shown great demand for this business.

What is unavoidable is that in recent years the global and Chinese art markets have all been in a difficult stage. The entire market is trading at a negligible level and there are no signs of success in the various fields of art. At this time, the art mortgage loan was favored by most people. 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. Precisely because the current art market is not at its peak, it is better to use it as a mortgage instead of selling its art at a low price, so as to obtain loans to ease the urgent situation. Cheng Shoukang said in an interview: “The concept of art loan was first raised in the United States in the 1970s. The incentive was that many large families had to inherit a large inheritance tax after the death of their predecessors, and they needed to realise some of the works of art. To ease the financial strain, therefore, all kinds of customers who need to obtain loans will provide family collections and hope to receive cash support.” Edelman (Edelman Art Lender) believes that: Now many collectors may have many in their hands Hall, Madden, etc. Many of them don't want to convert it into cash in the form of open trade, because if they don't reach the auction's reserve price, they may flow, which is a kind of damage to collectors and artists. As a result, a form of liquidation—art mortgages are more attractive. Marc Porter, chairman of Christie's former Americas, also pointed out that it is not surprising that more and more banks and institutions hope to join the art loan during such a period, because the threshold for this business is relatively high, and on the one hand, it needs to have The financial experience, on the other hand, must be an expert in art. Uncertainty in the valuation of artworks has led to a lot of capital has not dared to enter, and now this wall is slowly becoming transparent, coupled with the art market, especially the Western art market after years of precipitation, has become relatively fair and rigorous. At this time, more and more funds will be eyeing this "flesh" is also more reasonable.

In addition to the bad economy and urgent need for cash flow, Cheng Shoukang also pointed out that with the development of the art market in depth, many public and private collectors have had a lot of inventory, although there are still a few museums and art galleries. A large part of the collection is stacked in the warehouse. After all, many paintings cannot be placed at home. Instead of having these collections piled up in the warehouse, it might as well be used as collateral to get cash for other investments. As time goes by, artwork is likely to rise in price, especially when the market goes up. When the money is used first, the chance of appreciation will be a win-win situation for the customer. From the point of view of the auction house, Cheng Shoukang said: “This will not only solve the customer’s real troubles, but also clear up the way for the auction house to collect. Things that once became collaterals will simply be entrusted to us directly after the customer thinks for a while. This way 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 occupies a large proportion.

Artwork Loan: Auction House PK Bank

Despite the increasing number of capital-phased art mortgage loans, the actual operational level is now limited to a few major auction houses such as Sotheby’s and several major global commercial banks. According to sources, there are also sporadic water testing institutions in mainland China. 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, all kinds of uncertainties that the artwork will eventually become difficult to achieve will remain the biggest constraints. Therefore, there are not many companies/organizations that are truly involved, and more are still waiting to see.

There is no doubt that Sotheby’s was the most successful in this operation. The reason for this is that Cheng Shou-kang attributed this to: "We provide a one-stop service for art." He analyzed the entire process of Sotheby's Art Mortgage Loan: "Sotheby's has an independent department to operate so that Solve financial related issues, such as interest, loan repayment time.Although Sotheby’s is a globally harmonized policy, it is necessary to decide whether or not the loan and loan amount will be discussed with regional experts.For example, one Asian customer is looking for When I Cheng Shoukang wants a loan, I need to report his appeal to the headquarters of the United States in New York and let the New York headquarters know how long I have known this person (who wants to get a loan) and what is the relationship with Sotheby's. The above information needs to be reported in detail, after all, the one who knows the most about his clients, and the second is to see what kind of collateral he takes out.If his collateral is a Western painting, he may need to go to London or New York Western painting. Experts will come to verify it; if it is a porcelain or Chinese painting, we can directly give a valuation opinion from our department here. The money is 40%-50% of the low valuation, but of course, there is still a certain amount of room for negotiation, but the important point is that what we can lend is something that the expert thinks can be cashed through the auction. It is generally loaned to him by Sotheby's. If the amount is particularly large, we may need to use other banks and funds to issue loans."

Cheng Shoukang stressed: "We are a one-stop service. If customers go directly to bank loans, many banks have to use something to find experts to evaluate and realize the ability to realise the collateral, in order to ensure that if they do not understand the artwork. Clients cannot repay on time, mortgages must be easy to circulate, and of course, banks do not understand the auction process, so they often have to be delayed for a long time, which is why many banks do not carry out this business, and we have been operating this business for many years. Sometimes, if the guest is in a hurry, if it is fast, the loan has already reached the customer within a week or 10 days."

For auctions, art mortgages are definitely not as simple as obtaining interest from them. "After many people have obtained loans, not all people will redeem this item on time and on time. Because once the collateral thing is handed to us, many people have no interest in this thing. Mortgage We have been giving us money for many years, and if we want to redeem things, the funds will become tense, especially big collectors. So many times, let us just sell them. So, both We don’t need to continue repaying money and selling extra money we want to give customers.Perhaps the above situation is more practical for the auction, because what we can grant for lending is definitely a good thing. We think there is a future and we can sell a good price. This has already been done in our previous risk assessments, and there is also no point in the use of loans that are too low in value, and generally hold a value of around 10 million Hong Kong dollars and can lend about 4 to 5 million Hong Kong dollars. This good thing entered our warehouse and our competitors could not be taken from me, so it was a good thing for us to collect the goods. Segment. "Chengshou Kang said.

A senior art finance personage commented: “The biggest advantage of banks compared to auctions is that interest rates are relatively low, because, like Sotheby’s, they are mostly based on bank interest rates plus their own profit points. But many Although bank loans provide artistic collateral, many restrictive clauses may eventually become non-pure art mortgages, for example, banks may experience difficulties in repayment, or the value of collateral and the ability to sell. For certainty, you will attach to your terms and conditions the freezing of your other current assets, such as stocks, bonds, etc. This will make your costs higher for the lender, and the bank’s ultimate motivation is to Interest, but not the needs of the collection, less a big motivation, many banks itself is not very interested in this business.Furthermore, if there is a problem in the midway repayment, you can not ask the bank to sell the work, repay the loan and The extra money will be refunded to you, and there is definitely no auction flexibility in this area. Unless you really cannot get a loan, the bank will have to go Selling through other channels.” This is probably why the major banks in the world, although they all set up this business, are not enough to compete with Sotheby's.

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