Lending Collateralized by Art on the Rise

Reuters is reporting that US brokerage firms are now more willing to lend against fine art.  According to the article, in the past art loans was the domain of private banks, but now, in order to court the wealthiest of investors. Brokerage houses are now see the benefits of art loans to strengthen ties with high net worth individuals. UBS Wealth Management recently unveiled a program to their brokers for loans up to $150 million collateralized by art, musical instruments and fine silver.

Over the past several weeks I have noticed more articles in the financial and art trade press on aspects of collecting as an investment than I have in the past.  Appraisers should take advantage of the art as an investment publicity and to leverage this press focus into additional assignments and new income opportunities.

Reuters reports

Until recently few brokers or banks were in the business because of the expertise needed to evaluate the volatile market conditions in fine and decorative art and the complex legal issues related to ownership certification. Augenblick said a growing number of financial institutions want to compete with the pioneers of art-based lending such as Citigroup.

He declined to name brokerage industry clients besides UBS but said brokerages are increasingly aware that some $50 billion of art is traded annually while traditional asset management fees are shrinking after more than four years of rock-bottom interest rates.

The referral arrangement through UBS's almost 8,000 North American brokers should "spur growth across the entire global art-finance industry," he said.

Just 22 percent of private banks surveyed in 2011 by Deloitte Luxembourg said they advised clients to consider art-collateralized loans. However, one-third of respondents said they were giving thought to adding art lending within two to three years.

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Tighter lending controls in Europe and the United States have generated additional referrals to Emigrant, Augenblick said, as have the concerns of wealthy retirees who fear that plummeting rates are eroding their principal. Many art owners want to preserve liquidity without absorbing the heavy auction-house fees and capital-gains taxes that would come from outright sales, he said.

Morgan Stanley, which boasts the biggest U.S. brokerage force through its majority-owned joint venture with Smith Barney, makes art-backed loans through third parties but has not seen great demand for the service, a spokeswoman said.

A Bank of America spokeswoman said the fine-art lending services of its U.S. Trust private banking unit are available to any clients they "make sense for." She declined to say whether art loans are actively marketed by Merrill Lynch brokers.

Source: Reuters