Banks Tighten Art Loan Credit

Troy McMullen of Conde Naste's Portfolio.com is reporting about a tightening in the credit market. This tightening is not only on traditional lending practices which we have been reading about and observing over the past few months in the main stream media, but on art loans. In the past I have posted on the AW Blog and these types of art loans, many collateralized by fine art collections. Many banks saw these small segment or niche/boutique loans as a value added service for high wealth/net worth individuals.

McMullen states U.S. and international art collectors borrowed an estimated $2 billion to $3 billion from private banks and other financial-services companies during the past decade, according to Art Capital Group, a New York-based firm that specializes in art finance. The loans are often backed wholly or partially by the art itself with private lenders typically charging modest monthly interest payments. Now, even the wealthiest collectors are finding it difficult to secure lending, experts say. Baird Ryan, managing director of Art Capital Group, says banks will likely continue to be tight-fisted until credit markets recover. "Long-time clients at the larger banks are probably fine," Ryan says. "But if you're a new client, or new to the art market in particular, banks aren't making the loans regardless of what you're worth. " The concept of leveraging art has existed for years. Private banks and many corporate giants such as Deutsche Bank and UBS have long offered lending services through their art advisory wings in an effort to lure business from wealthy clients. Part of art financing's success can be attributed to its appeal. It has managed to make a traditionally illiquid asset a maneuverable cog in an investor's portfolio. Banks reigning in lending parallels another trend in the art market: the growing number of people rushing to cash out their collections.

In addition to the tightening credit on art loans, another interesting aspect gleaned from this Portfolio article is the desire of collectors to not acquire or expand collections, but the number of collectors who are interested in selling portions of their collections. Basic economic concepts and theories apply to the fine and decorative arts...... when there is an over supply, prices decline.

Appraisers take note, these factors are not independent, they are all interconnected.

To read the Portfolio.com article click HERE.