Banking crisis threatens to end boom in the art market

Auction houses which have set – and broken – a series of records for contemporary artworks have never had it so good. But the unprecedented boom in the market could soon come to an end in the light of growing financial instability, a major insurer has warned.

The warning came from Charles Dupplin, chairman of the art division at Hiscox, Europe's largest insurer of fine art, as the nation's biggest auction houses launch a fortnight of seasonal art sales.

"November's sales may hit choppy water," said Mr Dupplin. "There could be an art market correction. On the whole, there must at least be a flattening off. The real test is what's happening in New York this week and next week."

He connected his comments to the resignation this week of the boss of the world's biggest bank, Citigroup, after it was revealed the bank was writing off between $8bn and $11bn in sub-prime-related losses.

The reverberations may be felt in the art market, said Mr Dupplin. "The people who work in financial services have got very negative sentiments and this sector partly represents those who are very interested in buying modern and contemporary art.

"The other part consists of the Russians and others on the international art market who have made money from commodities and privatisation. They are all sophisticated and financially astute and when they read the world's biggest bank has just lost its boss, the whole world will feel pretty negative about the financial outlook. If financial services whiz-kids catch colds and simply do not bid, there are fewer bidders, and the ultimate price of an artwork is less."

Mr Dupplin added: "Auctions in October were a little dispiriting. The percentage of lots sold was pretty average. There were no great new records set, only a couple of so-called records for minor artists, and some of the major works did not sell."

Among unsold works were Frank Auerbach's Head of EOW, predicted to fetch £190,000 to £200,000, as well as Head of David Landau, estimated at £500,000 to £700,000, and Damien Hirst's Adenosine, estimated at £1.8m to £2.5m. Mr Dupplin referred to one work, by Francis Bacon. "In the catalogue, the price was estimated at £7m to £9m, and its hammer price was £7.2m, so it came in at the bottom end of their hopes." If there was a correction, we would witness only the "early signs", he added, with a possible price tumble not coming into effect until next year.

But auction houses said October sales had been extremely healthy, with no signs of change in the market's unrelenting rise. A Christie's spokesman said Bacon's painting, Study From the Human Body: Man Turning on the Right still commanded the fourth highest price for the artist's work at auction.

He added that October sales, which were estimated to fetch between £55.6m and £77m, had brought in £66.6m. The auction house experienced its highest total for a week of art sales in Europe when it raised £237m in June.

Sotheby's, whose recordbreaking sale this year included Mark Rothko's White Center, which sold at £36.7m to become the most expensive post-war work to be sold at auction, said it was unfair to judge the market based on October sales, which had only built up since 2003.

"In the context of the February and June sales, it is smaller but we made triple what we made last year," a spokeswoman said. The auction house's global sales of contemporary art rose by 97 per cent during the first six months of this year.

Bonham's said there was no evidence in its sales of a dipping market, and reported a recent sale of Indian and Islamic art that fetched £3m, which was well above its estimate.

The soaring prices of contemporary art

* Mark Rothko's White Center was sold for £36.7m in May, setting a record for the artist at auction and a world record for a post-war work of art sold at auction

* Damien Hirst's diamond- encrusted skull, For the Love of God, on the market for £50m, sold for an undisclosed price, and became the world's most costly piece of contemporary art

* Hirst's pill cabinet, Lullaby Spring, left, sold for £9.6m, making the former YBA the most expensive living artist

* Andy Warhol's painting of a car crash sold for £36.3m in New York, beating the previous auction record for the artist of £8.8m

* L S Lowry's Good Friday Daisy Nook sold in June for £3.8m, setting a record for the artist

* In May, Francis Bacon's Study from Innocent X, far left, fetched £26.5m, almost double the previous high for a Bacon