| Although the Art Advisory unit
does not yield the revenue of foreign exchange trading,
it does help attract clients to the bank and to distinguish
it from competitors. Deutsche Bank also has an art advisory
service, with a similar retainer-plus-commission structure,
the commission varying depending on the price of the work.
UBS has an advisory service, which charges hourly management
fees and liaises with outside experts. Neither bank, however,
leverages art. What all three do offer is the regulated
environment of a bank, which, in light of the recent price-fixing
scandal at Sotheby's and Christie's, is no small matter.
And anyone can claim to be an art adviser; there is no regulatory
or certifying body. "If you knew what they get up to!"
says Guglielmino of some fly-by-night advisers. "They
don't have to comply with any regulations. There are always
special cuts and commissions." Many are also dealers
or collectors, introducing a potential conflict of interest.
When she meets with new collectors,
who make up 50 percent of Citigroup's business, the first
point Guglielmino makes is that if they're getting into
art to diversify their portfolios or make a killer investment,
they should think again. On average, art garners an increase
similar to bank bonds. "Flipping art hardly ever works,
and it takes a very, very experienced dealer to do it,"
she says. "You hear of instances where, in the 1970s,
someone bought a Rembrandt drawing for $300,000, and now
it's worth $4 million, but these are one-offs. The reason
to buy art is that you love it."
The market is fragile because of the
recession and September 11, but old masters, photography—"a
growing area that is hugely rising"—and contemporary
art are doing well. Dutch 17th-century art is a steady climber.
Only really exceptional Impressionist pieces are increasing
in value; from 1988 to 1990, buyers weren't discerning or
cautious and bought when they shouldn't have. Certain areas
are tricky, such as 19th-century European art. Because it's
a new, often decorative field and because there's so much
supply, it rises with the economy and is one of the first
to drop.
The art market follows economic patterns
with a lag. Typically, it's the stock market, followed by
real estate, followed by the art market. "At the first
dip in the stock market, people actually turn toward tangible
assets as a reaction," Guglielmino says. "So the
art market bumps up a little bit with it, vets it, and redirects
itself."
The Japanese are a very good example
of very bad art investing. In the late 1980s and early 1990s,
they bought Renoirs en masse, whether exceptional, bad,
or possibly inauthentic. "That bubble was an inflated,
speculative moment," Guglielmino says. "Now they're
landed with these things. And except for the top choices,
I think they may be almost impossible to liquidate."
On the other hand, savvy collectors
who bought in the dip when the market crashed in 1993-1994
have resold for great returns. "We have a client who
bought a whole group of very interesting, abstract, cool
American stuff when it was down and put a substantial amount
of money in it," Guglielmino says. "Last year,
we arranged for its sale, and it went through the roof."
One bargain buy is a Picasso bought by a Japanese collector
for $11 million and then taken possession of by a bank because
of a default. When it reappears on the market, it may not
fetch even $8 million. "Perhaps $11 million was too
high," she says. "But now it seems tainted goods,
even though intrinsically it's the same canvas and pigment.
So if you're well informed and know that it's a good piece
without problems other than exposure, you could make an
interesting buy."
|
