Art Loans Get Ugly

Of all the crazy loans handed out by banks in the past decade, perhaps the most ill-considered were art loans.

As art exploded in price, both banks and owners wanted to tap into the value. Paintings were used in the same way as people used their homes–as giant ATMs spitting out cash as long as the market went up.
But there are two problems with art: it’s highly cyclical and it can disappear–suddenly.
Evidence of the first problem became apparent last week when the Swiss banking giant UBS shuttered its “art banking” practice. The bank had an 11 person team devoted solely to advising clients on art purchases. It also sponsored Art Basel.
UBS says it has never offered art loans. Still, it is probably safe to assume the art-banking business wasn’t a big profit generator if UBS is shutting it down.
“Art banking does not belong to our core activities, so we will discontinue the operation,” a spokeswoman said, raising the obvious question of why they built it in the first place.
The more serious problem is that art can vanish. Sure, cars, boats and planes can vanish, but not as easily as a painting. J.P. Morgan Chase last week sued Dutch businessman Louis Reijtenbagh for secreting his Rembrands, Picassos and other paintings out of the country. The artwork was collateral for more than $23 million in unpaid loans.
The suit says the art was supposed to be safeguarded at an apartment in Manhattan, at Trump Tower, that is owned by Reijtenbagh’s sons, Jacob and Edgar. Oops. A list of the art that is now gone includes works by Rembrandt, Picasso, Claude Monet, Edgar Degas, Pierre Bonnard, Rene Magritte and others. (Jay Fialkoff, a lawyer representing Reijtenbagh and his sons in the Credit Suisse case, told Reuters on Friday that he was “not sure” if he was going to represent the investor in the J.P. Morgan lawsuit and declined to comment on it.)
Perhaps it is time someone invented a Lojack for art?
--By Robert Frank