KEY POINTS:
The worse the economy gets, the better it is for Jordan Tabach-Bank.
"Business is booming," says Tabach-Bank, the chief executive of Beverly Loan Co in Beverly Hills, California.
Beverly Loan is a pawnshop. Not just any pawnshop, but the kind that caters to people who hock Cartiers, Harley-Davidsons and Oscar statuettes when they need cash.
They really need it now, Tabach-Bank says from a third-floor office, protected by bulletproof glass, near Rodeo Drive.
"I've never seen so many bankers, lawyers, doctors and actors with valuable things to pawn." He points to an 18-carat white gold bracelet with 69 diamonds going for US$2900 ($5000) and an 18-carat yellow gold Rolex Yachtmaster II ("a steal" at US$18,500).
"In many cases now, we're not just the bank of last resort," Tabach-Bank says. "We're the bank of only resort."
While the average US pawn transaction is US$75, according to the National Pawnbrokers Association's website, at Tabach-Bank's shop, "confidential collateral loans", as they're called, have been made on artworks by Pablo Picasso, Andy Warhol and Jean-Michel Basquiat. Amounts loaned range from several thousand dollars to "six- and seven-figure deals", he says.
South Beverly Jewellery and Loan, also in Beverly Hills, has seen business triple in the past six months, says owner Yossi Dina. Some of the collateral is in a parking lot: about 60 cars, including Ferraris, Porsches and a Bentley.
The pawning surge has a drawback, according to shop owners. Just as falling real estate prices have led to record foreclosures in some cities, customer defaults have climbed by "a couple of points over the last six months", says Tabach- Bank.
For brokers, the ideal client is one who hocks a gold watch, redeems it by paying back the loan amount and interest, then hocks it again when the need arises.
"We want them to get their goods back," Tabach-Bank says.
Under California law, a pawned item remains in a shop for four months and 10 days, after which the client may get it back by paying off the loan or delay redemption by paying the interest.
The usual rate at Beverly Loan is 4 per cent a month, says Tabach-Bank.
In downtown Los Angeles, King's Jewellery & Loan began seeing luxury business pick up about 18 months ago when variable-rate mortgages started resetting to higher payments, says owner Sam Shocket.
"We were seeing more Rolexes, Patek-Philippe watches, larger diamonds," he says.
"Instead of construction workers, we'd see major contractors. Instead of real estate agents, we'd see brokers. Instead of actors who played bit parts, we'd see someone you might recognise from The Tonight Show."
- BLOOMBERG
