Art Collateralized Lending at Citi Group

The Financial Times has run a good article by Ian Driscoll on collateralized lending. The article goes into some of the past history of the practice, with some good information on the formation and practices of Citi Banks art advisory services, which was formed in 1979. The interesting aspect is the Citi group is comprised of art experts with auction and curatorial experience combined with bankers who also actively advised clients on what to buy and sell.

Driscoll reviews some of Citi's art lending policies, stating The task of valuing the works falls to Ms Gyorgy's nine-person team, obviating the need to seek outside opinion. Given the gossipy nature of the art market, discretion is a significant selling point for clients. The art advisory unit's expertise - every member has an academic, curatorial or auction house background - aims to ensure that valuations reflect market prices.

Once the art has been valued, clients are free to borrow against their holdings. The standard range is between $5m and $100m, although with higher-level approval clients can borrow more.

However, it is easy to imagine an unfortunate collector losing a prized Monet to a margin call, especially in today's market. And the best works aren't necessarily immune to wider market conditions.

Driscoll continues Still, the bank acts if it senses sentiment moving against a collection. "If we see things starting to soften, and if it looks like a certain artist is going to go out of favour, we will have a conversation with our client long before.

It appears that Citi Bank and its art advisory service plays an active role with clients collections, advising on buy and sell strategies in order to minimize margin calls. Citi lends on a 50% loan to value ratio, so it appears to be well protected from any major market variations.

We had posted on art lending in the past, but as usual, the Financial Times does an excellent job in reporting on the practice. To read the full article, click HERE. Some might have to register to read the complete article, but it is a free and easy process.