We need to talk about guarantees. And art loans

    Inigo Philbrick was apprehended on the Pacific island of Vanuatu © Illustration: Katherine Hardy

    In June, the fugitive art dealer Inigo Philbrick was grabbed on a road in Vanuatu, a small island in the Pacific, by a posse of police officers and FBI agents. He will be returned to New York, to answer criminal charges that he masterminded an art fraud that might eventually top an eye-watering $50m.

    The case has thrown into high relief two issues that are likely to become crucial in the art market this year: art loans and guarantees. Both may be impacted if the market takes a drastic plunge, which seems probable.

    Philbrick is accused, among other charges, of being in default of $14m from the art loans company Athena Art Finance. Such loans are legion in the art world and legitimately used to finance trade, but problems arise when values start to tumble.

    In Philbricks case, his deep knowledge of the Rudolf Stingel market proved of no avail when it started turning after 2017. According to the data analysts ArtTactic, Stingel sales fell by 14% at auction in 2018 compared with 2017. A case in point is a photorealist portrait of Picasso by Stingel, bought by Philbrick for $7.1m in around 2017, which fetched only $5.5m hammer when auctioned by Christies in 2019. By then Philbrick had actually sold over 100% of the work to other investors and allegedly falsified a $9m guarantee agreement from the auction house—but thats another story.

    Philbrick was not the only trader to find himself swimming naked when the tide went out (although he was nabbed wearing swim trunks…). New York art dealer Anatole Shagalov has just been clobbered with a $2m summary judgement by a Manhattan court for buying, but failing to pay for, a Keith Haring (he is appealing). Shagalov borrowed multiple times from art loan companies—as his former lawyer Matthew Hoffman once explained: “He borrows money, he buys art. He tries to sell it at higher prices.” Repeat. Which worked—until it didnt work anymore.

    It seems inevitable that others who traded on this basis—loans against art—may find themselves in difficulty because of the Covid-19 pandemic. We have already heard numerous reports of discounting, and with lower prices, borrowers may struggle to pay back their debts.

    A shrinking market could also have an impact on another strategy, that of betting on art via auction guarantees. This Read More – Source

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