The Financial Times’s Ian Driscoll studies art loans with Citi Wealth Management’s Suzanne Gyorgy, head of the division:
Ms Gyorgy says Citi clients who collateralise art fall into three broad categories. First are seasoned collectors who use loans in conjunction with their collecting activities. Second are private equity and hedge fund managers seeking a liquidity source to fund other investments. And third are clients who use collateral to fund projects such as new homes. What unites all these people are collections of museum-quality art.
“We want international and marketable art, so regional works with a small pool of collectors are not of interest,” says Ms Gyorgy. “And our minimum unit value per piece is $200,000. The majority of our loan portfolio is made up of traditional painting, sculpture, drawings and high-end photography. Post-war/contemporary and impressionist/modern constitute the largest portions of the portfolio.”
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. “Art, like any stock,” says Mr Moses, “has an enormous market component as well as an individual work component.”
But Ms Gyorgy says several factors prevent such a scenario, protecting both the client and the bank.
A significant mitigator is the bank’s 50 per cent loan to value policy. Risk is also ameliorated by annual revaluations of loan portfolios, with “stress test” modelling to ensure that clients are not over-exposed to a particular artist or genre. The art advisory unit also takes account of results at the leading biannual London and New York auctions. And a final layer of oversight is provided by the private bank’s credit and risk management team’s close monitoring of the art market.
Top-notch Art Oils the Wheels of Lending (Financial Times)
