From Now On, Bring Cash

By NANCY GIBBS

Even people who can contemplate dropping, say, $25 million on a painting occasionally need a little help. And in recent years, as art prices steamed ever higher, Sotheby's, the international auction house, has been happy to oblige. When a particularly coveted painting came on the block, Sotheby's told favored customers that it would loan them up to half of whatever they bid and let the painting itself serve as collateral. With terms like those, skeptics mused, is it any wonder that art prices (and Sotheby's commissions) soared? "The auction houses turned the art market into a financial market," charges Manhattan art dealer Richard Feigen. "A responsible market doesn't allow you to wear two hats."

Last week Sotheby's did not quite remove one hat, but it grudgingly hung its head. CEO Michael Ainslie announced that, in view of widespread criticism of the practice, the auction house will no longer offer loans using the work of art as collateral. Sotheby's will, however, continue to make other, secured loans. It will also continue "guaranteeing" minimum prices to sellers, a practice that many dealers and collectors charge makes the auction house in effect an interim buyer and compromises its standing as a disinterested agent.

"Our concern is that the art market be a credible place," says Ainslie, explaining why he was dropping the loan arrangement he had until recently so staunchly defended. If anything had cast doubts on the market's credibility, it was news that Sotheby's most flagrant loan deal seemed to be coming unraveled. As has been rumored for months, the world's most expensive painting, Van Gogh's Irises, appears to be headed back on the market.

It was only two years ago that Sotheby's auctioned Irises to Australian plutocrat Alan Bond for a record $53.9 million. The timing was critical. Coming as it did one month after the 1987 stock-market crash, the sale allowed Sotheby's to claim that works of art held their value through financial crises. But last October it was revealed that to enable Bond to make the purchase, Sotheby's had lent him $27 million. "Whatever the arrangement, it helped to raise the inflationary value of that particular picture," asserts Christopher Burge, president of Sotheby's starchy rival, Christie's. Like most auction houses, Christie's helps buyers find financing from banks but will not lend money itself; nor does it offer guarantees to sellers.

Bond's worldwide brewing, real estate and communications empire is now $5.5 billion in debt, and he is trying to fight off his creditors in a Melbourne court. Against that backdrop, the mere millions that a resale of Irises might bring him is small beer. Nonetheless, the pressure on him to liquidate it is real, especially since he has not been able to keep up with the payments and Sotheby's has had to roll over its loan. Reportedly, Irises is not even in Bond's possession but has been stashed by Sotheby's in a vault somewhere, perhaps in Switzerland. A spokesman for Dallhold Investments, Bond's private company, says Bond is not actively trying to sell the painting "despite the procession of agents who keep calling." The spokesman adds, however, that "anything and everything is for sale at a price."

Ainslie points out that Sotheby's has made only six such loans on artworks worth more than $1 million. It was perception more than principle that prompted the auction house to abandon the practice. "Six clients don't & inflate a market," says Ainslie. "Do we regret ((the policy))? No. Are we changing because of the market's perception? Yes." He rejected any suggestion that Sotheby's was worried about losing business. "You don't grow from $400 million to nearly $3 billion in annual sales within five years if people don't have confidence in you," he says. Still, Ainslie concedes that the timing was intended to avoid any ruckus before Sotheby's big spring sales of impressionist paintings in New York City and London.

Whatever the motive, Sotheby's decision brought cheer to the art community. "I welcome it," said Manhattan dealer Andre Emmerich, "because it will deflate the hyperinflationary atmosphere." Though the announcement may help restore buyer confidence that bids are not being manipulated, few dealers expect that prices will drop. "One way or another, the prices are going to go up," says Feigen. "But I'd rather it be natural than artificial."

Whether the price of Irises will go up remains to be seen. By selling it so soon, if he sells it, Bond risks lowering its value, since it is in part the elusiveness of great masterpieces that gives them their cachet. "It's certainly a lovely picture," says Burge wistfully. "I hope we don't lose sight of that amidst all the money and the greed."

With reporting by Janice C. Simpson/New York