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Top art loans have asked borrowers for more images as security for their loans, since the value of their collateral has fallen in the abbreviation of the art market.
Specialists in the sector of 40 billion USD have issued Margin calls because the value of the paintings promised against loans has dropped and the borrower asked to compensate for the decline by compensating for cash or swapping more expensive works of art.
Art loans, including Sotheby’s and Christie’s, take on security through works of art that belong to borrowers so that they can take possession of the pieces in the event of a failure.
Although the Deloitte advisory company estimated a niche area of the financing in a report from 2023 that the total volume of the outstanding art loans would grow to $ 40 billion by the end of this year, with the value of the works of art as collateral that may be twice as high.
Sotheby’s, which has a loan book of USD 1.6 billion and launched a bond last year, made Margin calls because “there are very few categories in which the value of art has risen in the past 24 months,” said Sotheby’s Financial Services Global Head of Lending, Scott Millisen.
According to the global managing director of Art Finance Arm, Sayuri Ganepola.
“Most of us have actually settled in cash in view of the strength of our borrower, but others have provided additional collateral if that is something that they wanted to do,” said Ganepola.
The lenders said that Margin calls in the art financial sector were relatively rare. Ideally, banks tried to prevent the trigger of Margin calls from their customers by drawing a gap in advance, said Adam Russ, global director of asset management and business loans at Deutsche Bank.
“Regardless of whether it is certain artists who do not occur, or a flood of paintings by an artist who comes onto the market, that could lead to a conversation,” he said.
However, a soft market has led a reliable demand for art creditors despite a higher interest rate environment, according to the lenders.
According to a report by Art Basel and UBS Art, the value of art market sales in 2023 fell by 4 percent to USD 65 billion, with a particularly strong decline in the auction plots more than $ 10 million. Last year Sotheby’s total turnover fell by 23 percent to $ 6 billion, while Christie decreased 6 percent to USD 5.1 billion.
Collectors who were not sold at low prices used loans supported with art as “a way to create liquidity from something that is only there,” said Nishi Somaiya, global director of private banks, lending and deposits at Goldman Sachs.
The lenders generally look for more than $ 200,000 to $ 250,000 and more than one artist to avoid concentration risks, and prefer impressionist and modern works by emerging artists without proven auction recording.
Ben Gore, Chief Operating Officer from Christie’s, said it would also be forgiven against jewelry, “but not for furniture or watches or some of the esoteren categories”.
But even if the art market is stronger, borrowers can be asked for more collateral. Gore said: “Even in strong markets, you sometimes see some artists because of the trends and moods of some artists’ markets.”
