In the second half of two-thousandths JSC Trasta Komercbanka for the first time launched art-banking as a banking service for its privileged clients. It was an innovatory movement for the country and banking sector. Mr.Vitaliy Leshchenko, the first head of art-banking department, was so generous to tell us about how it developed and what was behind the scenes.
- Vitaliy, please tell us about the very beginning - why was it considered an attractive business area and how did you find your way into it?
Everything there became one – my desire to merge my previous banking experience with the devotion to art, new trends on the market and the wish of the bank to have a distinctive product, which would put the bank forward, make it remarkable.
Lots of things I thought up from scratch, however certain precedents had been already known – CitiBank had been working in this sphere for a long time, UBS departments were known to us, in Russia GazPromBank announced a new dimension. Therefore, we turned out to be in a good company.
For sure, my passion for art helped me a lot, since there were many difficulties. I would not be able to manage it without inner fires. And this my passion in particular was the main reason for the bank to rely on me in this engagement.
- What were the main services art-banking provided to its clients?
We mainly provided intermediary services; through our contacts offered our clients opportunities to work with market majors. There were lots of consultancy works and evaluations.
- Did it request a big team or was it a capsular department?
- We had a very small department, just me and Kaspars Vanags (he is currently a well-known curator, who organized the Latvian pavilion at the last biennale in Venice, but now is managing art programs in AB charitable fund). However, the bank in its entirety was actively engaged in the work, especially marketing department. We worked as a part of investment department, and all our managing colleagues helped us a lot. Lawyers and accountants provided substantial aid. It was an all-the-bank project. It was so lovely.
- How did it all work from the bank perspective?
For the bank it was mainly an image product, however it was tuned to generate revenue, not to be expensive item only. We positioned ourselves mostly as consultants, therefore we had to have independent opinion which would not be the case if the bank formed its personal collection. Moreover, it would have been quite expensive. If we bought investment pieces, we would have had to go out for additional conditions. We did not have premises tailored to meet storage and demonstration criteria, but keeping the works in a warehouse without exhibiting them (t.i. treating them as the investment pieces only) was not something we wanted to do.
We used brokerage agreements, specially tailored to meet art-market needs. They were developed by English consultancy company, with whom we had a permanent service agreement. We outsourced everything we could: transportation, insurance, evaluation, expert reviews. It entailed expenses, which together with our interest rate formed the commission the client had to pay. We analysed market ourselves and built connections with the auction houses and major galleries all around the world. We had time wage type, but never used it. Always used complex individual approach – something should have been paid for third parties’ services + our percent of the deal, if it succeeds. We tried to find the solution acceptable to everyone. Each case was special, therefore even having the approved billing plan, many clients got special offers.
- When and why did art-banking department dissolve?
It was associated with the crisis of 2008, when activities on the art market almost stopped, while we did have obligations in front of our partners, which were signed long before that. Therefore, the revenues became insufficient to cover the expenses, and we had to fold operations.
- Art banking as a banking service exist in other countries. Do you know how generally is it built and functioning? Is there any principal difference with what was in your department?
Everywhere this service is considered luxury service for private banking clients. It is mostly built as the one we had, apart from the fact that many banks have their own collections and hold consultancy staff, which is at times quite impressive. Likewise, many banks (including, Citibank) were focused on credit-linked constituent, while we could not afford art-ensured lending – it was too risky and did not fall in line with banking policy.
There are many other nuances that distinguished our service from the similar services around the world. The problem was and remains in the registration of collateral and title perfection – there is no (and has never been) registry akin to that of the Landbook. In many countries clients are entitled to the loan while leaving the art work in their own possession. It is not the case in Latvia – we need to take over the subject of the collateral and store it. There are many other peculiarities as well.
- How do you think, is this banking service really demanded by our society or is it attractive due to beautiful publicity? Can the banking officials give the real added value to realization of the needs of the client?
- I believe that the banks can indeed offer a lot for the art market, especially in the fields where they are naturally stronger – lending and storage. Even more so due to development of interesting solutions, new technologies, which were not there 10 years ago.
- If a solvent person wishes to differentiate the assets, buy/sell an artwork or start collecting/manage the existing collection, what would be your recommendation - whom should he/she address? Or is it possible to manage these issues on your own?
- If a person is unexperienced, it is better to find a consultant. According to portfolio diversification it is considered appropriate to have no more than 10% of portfolio (taking into account all the property of the investor) in art assets. This rule does not apply to collectors who refer to the collection not as to an investment, but as something else, much greater.
- Does Latvia need specific/up-to-date legal regulation of art-related issues or does the existing regulation correspond to current situation and needs (from your perspective)?
- This goes without saying, that Latvia and many other countries are badly in need of solution to different art-related legal issues, especially taking into account that all these processes become more and more digital and art market becomes global. These should be title registries, regulation of copyright issues, tax questions, customs and transportation issues. Among the latest trends in this regard I am waiting with a keen interest adoption by Latvia (as an EU Member State) of the so called PSD2 (Directive on Payment Services in the second edition). At the first glance, it does not affect art-world, since it mainly relates to financial institutions. But it is so only at the first glance. This directive will give a chance to broaden opportunities of side organizations, which could help to solve pain points of art-market by connecting these solutions with new technologies and financial institutions. Everything is in there – legal basis, technologies, money and what is more – interest of financial institutions, which were just observers before the Directive. I think that in the result we will have new instruments to make the art-market accessible and more attractive to new clients, and especially to wealth managers, who have not considered art investments as a serious alternative to existing traditional capital investment methods. There were many talks about art as investment, and there were many examples of art being an attractive investment, but in overall art remained an exotic toy, but art-market was considered (quite reasonably) to be non-transparent and vague. Therefore, in a majority of cases, wealth managers have not directed significant investments to that in their opinion unclear market and did not advise their clients to do so1. I think with the adoption of this Directive (for the EU Members it will be the end of 2017) there will be a chance to put a new spin in this dimension.
[ The market proves this view and shows that wealth managers already now are more open to introduce art in the general investment portfolio. The recent survey shows a significant increase in the number of wealth managers saying that they think art and collectibles should be included as part of a wealth management offering (from 55% percent in 2014 to 78% in 2016), please see The Art&Finance Report 2016 of Deloitte, p.54, available at: https://www2.deloitte.com/lu/en/pages/art-finance/articles/art-finance-report.html (commented by Irina Olevska)]
- How do you evaluate the current (late autumn 2016) overall situation on the art market in Latvia and abroad? What are the main trends?
It is hard for me to argue for the art itself – it is the task of theoretic art history. I am also unable to tell something with regard to the Latvian market.
These are the main trends in the world if we talk about the market:
- the upper market segment (well-known names) is growing in prices;
- pure speculative interest to ultra-contemporary art has simmered down, if we look back at the last several years;
- more transparent market, more clear playing rules, more information available for analysis;
- closer collaboration between art and financial markets;
- increase of interest in online operations;
- usage of new technologies both online and offline;
- increase of impact of art fairs;
- expansion to new territories and markets;
- attraction of younger clientele;
- introduction of new services in the field of art-related insurance (e.g., Title insurance, which for a long time had been linked to real estate primarily)
- How could Brexit influence/shake the global art market?
It will depend on the further step of the UK. Brexit conditions are not clear yet. However, evidence shows that Brexit hasn’t much affected sales. Of course, life might become more complex for many people, but there are separate art laws in the UK which are not linked to those in the EU. These laws in particular have made the UK so attractive for art business – almost half of all the world’ s art market is circulating in the UK (can be compared only to the USA and China). For instance, export rules there are more liberal than those in Italy or Spain, not to mention Russia. As far as these rules are in force, I think, the market will consider the UK the one of the most attractive sales places.
Interviewed by Irina Olevska
Specially for artlaw.online
Preview photo: Milan Bruchter/shutterstock.com