Sotheby's, the world's second-largest auction house, fell 8.6 percent after disclosing a loss of $14.6 million on auction guarantees at its Impressionist and modern art sale this week.
The stock's drop extended yesterday's 28 percent decline, the most ever for Sotheby's. The shares have plunged 38 percent since the close of trading on Nov. 6 and today fell $3.09 to $32.75 at 4:03 p.m. New York time.
``There's a lot of emotional decision-making,'' said Lawrence Creatura, a portfolio manager with Clover Capital Management of Rochester, New York. ``About $1.3 billion of Sotheby's capitalization has been destroyed in the past two days for a $14.6 million obligation. It seems to be an overreaction.''
As of September 2007, Clover owned 132,775 Sotheby's shares, according to a Securities and Exchange Commission filing.
Sotheby's Impressionist sales on Nov. 7 took in $331 million, falling short of its low estimate of $420 million. Of 26 lots guaranteed, five didn't sell, including a Vincent van Gogh painting, and 10 sold below Sotheby's estimated range.
Sotheby's Chief Executive Officer William Ruprecht said in a conference call today that the $14.6 million loss was for art that Sotheby's sold at prices below their guarantees, not on art that didn't sell.
Nonetheless, when an important Van Gogh didn't find a buyer, ``it rattled participants at the sale,'' he said.
``Some of our estimates were ambitious and were informed by great successes we had earlier in the year,'' he said.
The auction results have analysts wondering whether the 11- year surge in art values may be cresting, in part because of losses in global markets tied to subprime-mortgage securities.
The sale's ``lackluster performance suggests that key fears related to subprime/credit/housing issues may be playing out in the U.S.,'' Banc of America Securities analyst Dana Cohen wrote yesterday to clients.
Sotheby's, which has its main salesrooms in New York, announced the loss on guarantees while reporting that its third- quarter net loss narrowed to $20.9 million, or 33 cents a share, from a net loss of $30.7 million, or 50 cents, a year earlier.
``Our Impressionist and modern art sales this week were profitable,'' Ruprecht said. ``However, these results fell below our presale expectations.''
The auction house was expected to report a loss of almost 37 cents a share, according to the average estimate of four analysts surveyed by Bloomberg .
Guarantees are promises of fixed amounts for sellers, regardless of a sale's outcome. Sotheby's has outstanding guarantees of about $458 million relating to works offered in the fourth quarter of 2007 and first half of 2008, according a quarterly filing today with the Securities and Exchange Commission.
Guarantees in the year-earlier period were $172.6 million, according to an earlier Sotheby's filing.
Specifically for its contemporary-art sale on Nov. 14, Sotheby's is guaranteeing at least $174 million in artworks, analyst Kristine Koerber of JMP Securities said.
Even in a boom, Sotheby's usually loses money in the third quarter, when it has few major sales. The first three months seldom make money either, though they did this year. In the past 20 years, Sotheby's had reported a profit only five times in the first or third quarters, according to company data.
Sotheby's London Old Master sales in July, including Velazquez's ``Santa Rufina'' painting, took in 45.2 million pounds ($95.1 million), compared with 31.8 million pounds in July 2006.
In the first six months, Sotheby's sold $2.87 billion of art at auctions, plus private transactions of $334 million. London- based Christie's sold 1.52 billion pounds ($3.18 billion) of art and collectibles at auctions in the first half, and handled 82 million pounds of private transactions.