Weak Results at Wednesday Sotheby Art Auction Relating to Credit Issues

So much for the credit woes not affecting acquisitions of toys by the wealthy. I wonder when this will spill over into the collector car market.


Business Week

Will Wall Street Weakness Whack Sotheby's?

The auction house could be in for some rough times if wealthy art buyers fret about the market fallout from the credit crunch

by David Bogoslaw

Modern paintings such as Wheat Fields, painted by Vincent Van Gogh at the end of his life, can often have an disquieting effect on art lovers. But the well-heeled buyers at Sotheby's (BID) auction Wednesday night were likely spooked more by the rout on Wall Street just hours earlier.

The take at the New York auction house's Impressionist & Modern Art Evening Sale on Nov. 7 came to $238.8 million, 33% below estimated proceeds. That prompted Banc of America analyst Dana Cohen to downgrade Sotheby's stock to neutral from a buy rating and to slash her target price by nearly 31% to $45 from $65 a share.

The disappointing revenue suggests some slowing in art sales, while the fact that nearly one-quarter of the lots went unsold may reflect fears related to subprime, credit, and housing issues in the U.S., Cohen said in a Nov. 8 research note. (Banc of America has provided investment banking services for Sotheby's, its subsidiaries and/or its affiliates within the past 12 months and the firm and/or its affiliates owns 1% or more of Sotheby stock.)

Sotheby shares plummeted 33.7% on Nov. 8, after trading just one dollar above the bottom of its 52-week range earlier in the session.

The bidding for Van Gogh's painting, which had been expected to sell for between $28 million and $35 million, stopped at $25 million, said Krsitine Koerber, an equities analyst at JMP Securities in San Francisco. A greater surprise to her was the $35 million hammer price for Paul Gauguin's Tahitian scene titled Te Poipoi (The Morning), which had been expected to sell for between $40 million and $60 million.

"They were struggling to get art work sold," said Koerber. On Nov. 8, she cut her rating on the stock to market perform from outperform.

The atmosphere and sales results at Sotheby's were the opposite of Christie's auction just one day earlier, said Koerber, who attended both events. Given that 48% of Christie's buyers were American, the sharp selloff in U.S. equities markets on Wednesday "may have spooked Americans going into Sotheby's auction last night," she said.

On Nov. 7, the Dow Jones industrial average dropped 2.6%, while the broader S&P 500 index fell 2.9%, in reaction to further asset writedown reports and news that New York State Attorney General Andrew Cuomo was opening an investigation into mortgage banks that may have inflated home appraisal prices.

If the credit crunch is having any negative impact on sellers and buyers in the art market, it's most likely psychological, said Koerber, noting that the sellers of works of art valued around $50 million tend to be billionaires.

"The reason we're seeing the level of guarantees at the auctions we saw last night and are going to see next week is sellers are concerned about the credit crunch and what's going on in the U.S. markets, and the impact it will have on the art market," she said.

Of the 76 lots that Sotheby's auctioned on Wednesday night, 26 were guaranteed, meaning that the sellers receive a promised amount from the auction house whether or not a piece of art is sold. Five of the guaranteed lots on Nov. 7 didn't sell, while another 10 lots sold at below the estimated hammer-price ranges, Koerber said.

Sotheby's could turn around and sell the unsold lots in a private sale, but it's hard to put them back on the auction block when the market knows what the pieces were going for on Wednesday night, she said.

The guaranteed minimum prices that Sotheby's provides on select items isn't a problem in a rising price environment, but the Wednesday night sale highlighted the downside risk if sales trends drop off, Banc of America said. It still expects Sotheby's third-quarter earnings to be strong but said investors will probably focus more on the direction in which auction results are heading.

Sotheby's is scheduled to report its third-quarter results after the market closes on Nov. 8, and analysts are anticipating a net loss of 30 cents a share on revenue of $79.2 million.

The third-quarter represents only 9% of Sotheby's annual revenue, the company typically loses money in that quarter, Koerber said. Analysts and investors will probably look at the results and plug into the conference call on Friday to get some color on how the art market is faring, after what happened on Wednesday night, she added.

The results of the contemporary art auctions that Sotheby's and Christie will hold next week – Nov. 14 and 13, respectively – will be much more meaningful, considering that fourth-quarter revenue accounts for roughly one-third of annual revenue, she said.

Bogoslaw is a reporter for BusinessWeek's Investing channel .

 

You need to see the price index of old masters and modern art over the past few years to inderstand that an adjustment was over due, and most of the really good art, in volume, has been off the market for a long time. M

 

I work as an art appraiser and part time art dealer. A lot of those works have been shopped a around for a long time and were not fresh to the market. Most of the market has realy been dealer driven in the last 10 years. The major auction houses have very poor customer service and dealers who give better service are getting the business. Both auction houses were players in the classic car auction world and where are they now? Christies recently shut down thier automotive department due to lack of interest.

 

Is this true of Wheat Fields? I'd think a Van Gogh would get some bids.

 

arghh i dont want to get into a recession...this will be ugly.

 

$25 million.

the guy could hardly afford food, borrowed money from his brother to get by, and died poor.

That just sucks on so many levels...

(sigh)


GT

 

Wheat Field's hs been shopped privatly for a while. The art market likes fresh items just like the vintage Ferrari market.

 

Hmmm. I priced the reprint and its still 29$ at the Chicago Art Museum. Price hasn't been affected one bit .

 

Yeah, I was thinking the EXACT same thing... disgustingly unfortunate.

 

The Ferrari market was in lock-step with the real estate market when it crashed in 1990. IMHO the recent run-up sounds like deja vu all over again. Just my 2 pennies, and have to admit I've been wrong more than right. Call me in a year and I'll hang my head in shame or say, "Told ya so!"

 

i'm not sure about the Ferrari market but Steve M., wasn't Wheat Fields Van Gogh's last piece? The price seems low compared to some other recent sales; or is Van Gogh no longer the flavor of the month?

Regards,

Art S.

 

At least one of his last works. Hung over his death bed as he lay dying from self inflicted gun shot wounds to the chest.

IMHO it's a buy @ 25.

 

Asset repricing across all categories is virtually inevitable, except for gold and oil, apparently.

Jack.

 

The real estate market in the Pacific Northwest is actually still going up. We are in a recession, no matter what all the stooges say. If Hillary gets elected, things aren't going to get better. She is a Wolf-Bi**h in sheep's clothing. I can't think of ANYONE who deserves my vote....

 

Even if I was a billionaire, I couldn't ever see myself putting down $25 million on a painting like that. Don't get my wrong, I absolutely love art, but I don't believe it should be bought and sold like a commodity. I'd have other places to invest money. I'd much rather buy artwork (for less $) from an artist directly to help make his/her ends meet. Not pay someone who wants to make a couple million while "borrowing" the painting for a few years. Oh well.

 

Do you guys know the song by Roy Orbison - its over, its over...
i work on Wall Street and at least from here it looks like the START of something far larger then just of re-pricing, see you on the other side of a recession in 3 months.

So much for so long has been somewhat inflated that its now coming to light. Art, cars and other items will suffer - for sure - its naive to think that disposable income does not get affected.

Can u pls let the guy that bought the Steve Mcqueen lausso that i bid 350k if he wants to s/l .. just kidding, i dont think 350k is the right price 6 months from now, its prob more like 275K...

Anyhow, its all speculation, and im sure that truly rare items will hold up ok, but less rare will get hit rather badly! No reason to assume that cars that went up 100 pct in the past 36 months, cannot lose 50% in 12 months, its ok, its all economics.

For starters i think that 750 Monzas' will be trading again at the 600k price point in the next 24 hrs..
Oh, and this is without factoring the possibility of a stronger US dollar, that will likely completely destroy the collectible market. For a fact, in GBP or Euro terms prices for classics have been mainly flat in the past 12 months, so if the USD gets stronger the European bid will evaporate.
have a nice weekend.

rgds
elad

 

B-J might be real interesting (for a change) in a couple of months....If collectible car values begin to erode I'm betting American muscle will be the first off the cliff.

Jack.

 

Yes, but Alfa TZ 003 just sold recently for an INSANE amount of money!

As to the US dollar getting stronger, I don't see it happening until at least the next presidential election. Right now it is getting weaker almost every day...last I checked it was $1.47 = 1 Euro

 

If I was worth billions, I would have bought it too! I LOVE Van Gogh and Monet...all I can afford is modern prints....

 

18th from the last according to this site i looked at
http://www.vggallery.com/painting/by_period/auvers.htm

its actually called "The Fields" btw, not wheat fields

 

I wonder how much longer people will pay seven or eight figures for that stuff Damien Hirst calls "art"...............

Jack

 

hopefully not too long.

 

My wife and I had the great privilege of touring the Van Gogh Museum in Amsterdam some years ago. It was spectacular and I am not an artsy-fartsy type of guy. The sunflowers painting was my favorite.

 

I'll take this one, which is in the Tate Gallery...

http://www.vggallery.com/painting/p_0793.htm

 

You can have that, I'll take this one: http://www.vggallery.com/painting/p_0802.htm

Funny that it is kept about 5 blocks from where I live... Best wishes, Kare