Back to Contents of Issue: December 1999
the bubble economy of the late 1980s, Japanese corporations
became the nouveau connoisseurs of the art world, snapping
up masterpieces one after another with little regard to either
quality or price. Today, as many as 10,000 paintings, valued
at \1 trillion ($9.5 billion), are stored in bank vaults,
secured by the banks as collateral against loans to failed
corporations. Caught by the huge gap between acquisition cost
and current market price, with some works now valued at no
more than 20% of their acquisition price, the paintings remain
untouched, out of public view, facing a highly uncertain future.
In an attempt to rescue at least some of the masterpieces
from their cold storage fate, a new institute specializing
in the appraisal of art was launched in September of this
year. Working under Kanetora Taira, president of the privately
owned Tokyo Museum of Modern Art (MOMA), the (tentatively
named) Research Institute for the Safe Transaction of Art
(RISTA) plans to ascertain the authenticity of these stored
works and establish their current market value using online
information and a database of overseas museums, including
the Art Institute of Chicago and the Netherlands' Van Gogh
National Museum. "We have found that a considerable quantity
of artwork on display at national and public museums, and
much of the vast store of bubble-era masterpieces hidden in
bank vaults, is either fake or of a lesser quality," says
Taira. "My intention is to help Japanese banks, corporations,
and national tax authorities determine the intrinsic value
of these works, and help owners clean up their nonperforming
Moreover, the Japanese government is standing behind Taira's art appraisal scheme, and officers from the Ministry of Finance, the Ministry of International Trade and Industry (MITI), and the Agency for Cultural Affairs, along with staffers from two major auditing companies and several banks, have been participating in preparatory meetings held by RISTA. Through their involvement, government agencies are hoping to hasten the cleanup of the bad debt tangled up with the art.
The art frenzy peaked in 1990 when Ryohei Saito, chairman of Daishowa Paper Manufacturing bought the Portrait of Dr. Gachet by Vincent Van Gogh for $86.5 million, along with Le Moulin de la Galette by Pierre-Auguste Renoir for a world-record $78.1 million. (The purchase broke the previous record of $38 million for Van Gogh's Sunflowers, purchased by Yasuda Fire and Marine Insurance in 1987, the $37.6 million paid by Mitsukoshi Department Store for Picasso's Acrobat and Young Harlequin in 1988, and the $52 million for Les Noces de Pierrette by Nippon Autopolis in 1989.) Japanese companies made their purchases with little regard for quality or price, becoming a dominant presence at auctions in New York, London, and Paris. The opaque nature of the painting transactions lured numerous corporations in need of a quick repository for paper wealth.
A spate of financial scandals using artwork surfaced after the collapse of the economic bubble, involving the now defunct Itoman, a medium-sized trading house, and Mitsubishi Corp., one of the largest trading houses. In September this year, the Osaka District Court sentenced a former president of Itoman to seven years in prison for his involvement in the largest art-based financial scam of the late 1980s. This was followed by Itoman's bankruptcy, and the resignation of the high-profile president of Sumitomo Bank (the major credit bank involved in the art scandal). The crime? Itoman had been using art as a medium of exchange in order to inflate real estate values.
offer you can't refuse
Unfazed by the stock market collapse in early 1990, corporations increasingly viewed the exploding art market as another venue to make even more profits. But with the property market looking riskier (due to stricter governmental restrictions and the declining stock market), an increasing number of corporations were seeking to broaden their investment portfolios into the world of art. Thanks to an accounting system based on book value, art investment was expected to score substantial unrealized profits, accrued between the acquisition cost (book value) and the market price at time of valuation. As dealer and collector numbers were limited, the participation of novice players was necessary to drive up art market prices.
Bank loans were offered as leverage to drive up art prices. Banks launched new art-secured loans to attract more high net-worth clients. Typically, banks would lend up to 50% of a painting's value at 2% above the long-term lending rate. Fuji Bank was the first to offer such loans in cooperation with the Saison Group credit card company. Many other financial institutions such as Mitsui-Taiyo Kobe Bank (today's Sakura Bank), Mitsubishi Bank, Daiichi Kangyo Bank, and non-banks like Daishinpan - even department stores -- offered art-secured loans. As the loan scheme became hugely successful, with art prices shooting up, art investment fever spilled over to individual investors. In January 1990, a real estate company called Maruko Inc. sold shares to 11 paintings, including works by Renoir, Pablo Picasso, and Marc Chagall. The company also purchased Amedeo Modigliani's La Juvie at a price tag of \1.2 billion, and allowed individual investors to purchase investment shares for \10 million each. The paintings will be placed on the open market sometime between 1995 and 2000, with the expected capital gains to be divided among the fund members. Several other companies followed suit.
Picasso goes where I go
it with you
have agreed that the first stage -- seeing high-profile paintings
sold to overseas buyers, as well as to Japanese public museums
-- has come to an end. Now Japan's art market is entering a
second stage, as players attempt to dispose of the lesser
quality bubble-era artwork for which they paid hugely over-inflated
prices. "As much as 70% of bubble-era paintings in storage
have no provenance," says The Museum of Modern Art's Tairo.
"Provenance -- the ownership history of the painting-determines
the value of the painting, and helps determine if it is a
forgery," he says. Half of the dozens of paintings secured
by the collapsed Long Term Credit Bank, held as collateral
on loans to the now-defunct EIE International (a resort developer),
have no provenance, and this seems to be the latest evidence
of the bank's reckless and shady financial art dealing. The
vast collection of over-valued bubble era artwork serves as
shackled testimony to the folly of Japanese corporations and
the complete lack of governance over them.
Yoko Shibata is a freelance writer based in Tokyo. Contact her via email@example.com.
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