5/19/2014 Goldman Sachs Supports Cohen With Loan Backed by Fine Art - Bloomberg

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Goldman Sachs Supports Cohen With Loan Backed byFine ArtBy Miles Weiss - May 6, 2014

Goldman Sachs Group Inc. (GS), which stood by Steven A. Cohen last year as his SAC Capital AdvisorsLP bore the brunt of a massive insider trading probe, has come to the billionaire’s aid again.

The top prime broker to the former hedge-fund firm, Goldman Sachs is making a personal loan toCohen for the first time, according to a regulatory filing, joining the list of banks that have providedSAC’s founder with credit lines backed by his $1 billion art collection. Like Citigroup Inc. (C),JPMorgan Chase & Co. and Bank of America Corp., New York-based Goldman Sachs is making theloan through its private bank as part of an effort to expand its business catering to ultra-wealthyindividuals.

Goldman Sachs’s Chief Executive Officer Lloyd Blankfein and President Gary Cohn expressed supportfor Cohen, 57, after SAC was indicted in July by federal regulators for insider trading, and continuedto do business with the firm after it agreed to pay $1.8 billion in November to settle the charges.Goldman Sachs stepped in after Cohen had been seeking an art loan for months, having paid off andterminated his personal credit line from Deutsche Bank AG (DBK), said two people familiar with thematter, who asked not to be identified because the matter is private.

“Goldman is opportunistic about these things,” said Ian Peck, the head of Art Capital Group, a NewYork-based firm that provides loans secured by artwork.

Reinvesting Loans

Goldman Sachs Bank USA, parent to the firm’s private bank for the very rich, filed a notice with theConnecticut Secretary of the State reporting that Cohen had pledged “certain items of fine art” undera security agreement dated Feb. 28, which didn’t specify how much money was borrowed. TheFebruary filing is the first to show Cohen receiving an art loan from Goldman Sachs. Michael DuVally,a spokesman for Goldman Sachs, declined to comment on the amount of the loan, as did JonathanGasthalter, a spokesman for Cohen at Sard Verbinnen & Co.

Private-banking clients such as Cohen prize art loans because they can keep the paintings in theirhomes while borrowing at rates as low as 2.5 percent. Some managers reinvest the loans in their own

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funds, taking advantage of the difference between their borrowing rate and the fund’s rate of return,according to Michael Plummer, the co-founder of New York-based consultant Artvest Partners LLCand the former chief operating officer at Christie’s Financial Services.

Cohen’s Fortune

“A number of hedge fund guys who manage their money wisely, they look to put their art collections towork,” Plummer said in a telephone interview. “If you can get liquidity out of your collection and payonly 250 basis points,” Plummer said, “it just makes sense.” A basis point equals a hundredth of apercentage point.

Cohen, who has a fortune of about $11 billion, according to the Bloomberg Billionaires Index, isknown as a major collector of Impressionist, modern and contemporary art. Cohen’s art collectionranges from works by Vincent Van Gogh and Pablo Picasso to postwar masterpieces by Andy Warhol,Jackson Pollock and Jasper Johns.

For Goldman Sachs, which like rivals has struggled to return profitability to levels achieved before the2008 crisis, the art loan is an opportunity to cement ties to Cohen and Point72 Asset Management LP,the family office that succeeded SAC after the hedge fund returned the money it managed for outsideinvestors.

Family Office

The family office could still be a rich source of business for Goldman Sachs and other Wall Streetfirms. Cohen’s firm managed about $11.9 billion in assets as of Feb. 1, according to regulatory filings.Executives at SAC, which had $15 billion at the start of 2013, had expected the firm to start this yearwith about $9 billion once capital was given back to investors.

In its heyday, SAC managed as much as $16.5 billion, thanks in part to average annual returns of 30percent that the firm has produced since Cohen founded it in 1992. Goldman Sachs was a primebroker to roughly 25 SAC funds and affiliates, more than any of the nine other banks that previouslyprovided such services to the firm, according to its 2013 investment adviser registration. The nextclosest was Morgan Stanley, which SAC listed as a prime broker to about 13 entities.

SAC paid banks $1 billion in annual commissions and other fees in recent years, the Wall StreetJournal reported in December. Prime brokerage services range from trading and margin loans tosecurities lending, clearing, settlement and custody.

Great Counterparty

Goldman Sachs’s Cohn described SAC as a “great counterparty” last year on CNBC, after the hedge-

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fund firm was indicted by prosecutors. Blankfein in a September interview with the news channelmade the distinction that Cohen’s firm had been indicted, not convicted, and added that thegovernment “wouldn’t want us to withdraw” financing provided to SAC.

Other SAC prime brokers had previously provided Cohen with art loans through their private-bankingunits. Citigroup made such a loan at least as far back as 2003, according to public records, while Bankof America provided similar financing in 2008, followed by Deutsche Bank Trust Company Americasand JPMorgan Chase Bank NA in 2009 and 2012 respectively, the records show.

Amid the government investigation and indictment, there had been several changes to Cohen’s priorborrowing agreements. A Citigroup credit line that Cohen initially took out in 1994, secured by hisstake in SAC Capital Management LP, was allowed to expire in October 2012, regulatory filings show.The bank filed new documents that December on an art loan provided to Cohen, according to thefilings.

Natalie Marin, a Citigroup spokeswoman, declined to comment.

Repaying Deutsche

Cohen last year repaid his art loan from Deutsche Bank, one of several SAC prime brokers that at thetime were said to be weighing the reputational and financial risks of continuing to do business withthe hedge-fund manager. The credit line was not renewed, according to a November filing with NewYork State and one of the people.

That month the hedge fund manager sold seven pieces of artwork that tallied at least $77 millionthrough Sotheby’s. The priciest was Gerhard Richter’s 1986 abstract painting “A.B. Courbet,” whichsold for $26.5 million, followed by Andy Warhol’s 1963 “Liz #1 (Early Colored Liz),” which sold for$20.3 million.

Cohen’s Collection

Cohen’s collection includes art valued at about $1 billion, according to estimates by a lender whorequested anonymity because the information is confidential. In March 2013, Cohen bought PabloPicasso’s “Le Reve” from casino owner Steve Wynn for a reported $155 million, which at the time wasthe highest price ever paid by a U.S. collector for artwork.

He gained art-world fame about a decade ago by paying $8 million to purchase Damien Hirst’ssculpture of a shark preserved in formaldehyde, and in 2012 spent some $120 million on four bronzesculptures of a woman’s back by the artist Henri Matisse, according to the New York Times.

Like units at many big investment banks, Goldman Sachs’s GS Private Bank provides cash-

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management services to clients and also offers “tailored lending capabilities to enhance client liquidityand flexibility,” according to its website. The financing provided to clients ranges from unsecuredpersonal loans and residential mortgages to loans backed by securities, stakes in private equity andhedge funds, commercial real estate, private jets, yachts, vineyards, ranches, and art collections,according to the website.

Private Bank

Goldman Sachs’s private bank falls within the wealth management services offered to rich clients,ranging from trading and investing in funds run by the firm to financial planning and trust and estateadministration. The firm’s private wealth management business dates back to 1906, when GoldmanSachs helped underwrite the initial public sale of Sears, Roebuck & Co. (SHLD) and followed up byoffering personal wealth advisory services to the retailer’s founders and executives.

In 2007, Goldman Sachs bought a majority stake in a $24 million loan that Art Capital made tocelebrity photographer Annie Leibovitz that was backed by her entire photo archive, as well as otherartwork and real estate. While the firm originated its first art loan in September 2008, it has had asmaller presence in this market than private banks run by the likes of JPMorgan, Citigroup and Bankof America.

Art Loans

“In my experience, Goldman is not one of the usual sources for art loans,” said Thomas C. Danziger, aNew York attorney lawyer who represents financial institutions that are making art loans. “It’s nottheir bread and butter.”

That may be changing. Goldman Sachs Bank’s other consumer loans, a category that includesborrowings backed by art and excludes auto and student loans, more than doubled to $980 million atthe end of 2013 from $464 million a year earlier, even as total assets shrank. As of March 31, GoldmanSachs’s other consumer loans had increased to $1.07 billion.

“Its sort of the last non-transparent business and non-regulated business, which of course Goldmanhas thrived on in all these years,” said Asher Edelman, a former corporate raider who now runsArtAssure Ltd., a New York-based financing firm, said of the art-lending field. “That is where theyhave always done the best.”

To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel atcbaumgaertel@bloomberg.net Sree Vidya Bhaktavatsalam, Josh Friedman

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