finance

This page considers art-based finance.

It covers -

• introduction
• vendor finance
• deductions
• derivatives

     introduction

As noted elsewhere on this site, it is recurrently fashionable to characterise art - or other commodities such as violins and gold coins - as "the new asset class" and even as an commodity that will generate exceptional returns for an investor who is visionary or merely advised by an outstanding consultant. (Proponents of investment in domain names have voiced similar claims in trading individual names or portfolios.)

There has thus been interest - arguably more from journalists and advisers than from holders of substantial capital - in the development of art investment funds, discussed in more detail elsewhere on this site.

Commercial financing of art purchases has varied over time and by jurisdiction. A preceding paragraph noted concerns regarding soft financing (and problematical reporting) by leading auction houses of high profile purchases by figures such as Alan Bond. Some houses have promoted affinity cards or other finance schemes to encourage consumption by their customers.

Institutions have also sought to capture some of the value during periods of exceptional increases. During the 1980s property bubble, for example, Japanese banks offered special finance based art assets. Typically they would lend up to 50% of a work's value at 2% above Japan's long-term lending rate but substantially lower than the US prime, with much borrowing on a speculative basis for acquisition of other works and accordingly criticised as fuelling "abnormal" price increases. Leading institutions such as Daiichi Kangyo Bank, Mitsubishi Bank, Fuji Bank and other entities such as department stores (eg Saison-Seibu), trading houses (eg Itoman) and consumer credit companies (eg Daishinpan) offered art-secured loans.

Collapse of the bubble after belated action by the Bank of Japan saw attempts to unload holdings and suggestions that a decade later lenders held some 10,000 paintings, with a notional value of US$9.5 billion, as collateral against loans to defunct or ailing enterprises. Property developer Maruko Inc. famously sold shares in 11 paintings by Picasso, Renoir and Chagall before paying ¥1.2 billion for Modigliani's La Juvie and offering individuals "investment shares" at ¥10 million each.





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