Nov. 8 (Bloomberg) -- Sotheby's shares had their biggest- ever one-day drop after a Vincent van Gogh and other paintings failed to sell at an Impressionist art sale, prompting concern that credit-market losses will batter the art world.

Last night's New York auction took in $269.7 million, a third less than the low presale estimate of $401 million. (Both figures include commissions.) Sotheby's shares tumbled $14.23, or 28 percent, to $35.84 in New York trading after analysts downgraded their ratings.

Sotheby's had promised sellers fixed prices for works by Van Gogh, Pablo Picasso and other artists, regardless of whether the pictures sold, and some didn't. The shortfall may signal that the market has crested.

``If they have huge guarantees, and there are a lot of unsold lots, it could have a ripple effect on the contemporary art market,'' said New York dealer Richard Feigen, who has invested in Sotheby's stock. Christie's International and Sotheby's have major auctions of contemporary art next week.

Sotheby's shares are a wager on an 11-year bull market in fine art. They rose to an intraday high of $61.40 on Oct. 11. In August, billionaire Eli Broad predicted art prices would fall amid credit-market losses by hedge funds and other collectors. The stock slipped in the past 10 days as U.S. bank losses on subprime-mortgage investments mounted.

Risk Amount

The auction house ``is carrying a lot of risk'' going into next week's contemporary-art auctions, analyst Kristine Koerber of JMP Securities said in an interview.

She downgraded her rating on Sotheby's stock to ``market perform'' from ``market outperform.''

Banc of America's rating went to ``neutral'' from ``buy'' this morning, based on a ``cloudier macro outlook for the art market.''

``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 analyst Dana Cohen wrote to clients.

During the art-market boom, values for Andy Warhol, Mark Rothko and others more than quadrupled. Investors betting on a decline sold short 8.2 million Sotheby's shares, or about 13.3 percent of the stock available for trading, according to New York Stock Exchange data on Nov. 6.

Short sellers sell borrowed shares, aiming to replace them with stock bought later at lower prices.

``Sotheby's offers investors a great way to place bets on these big events,'' just as tennis fans might put money on Roger Federer before the U.S. Open, said George Sutton, an analyst at Craig-Hallum Capital, whose rating fell today from ``buy'' to ``accumulate.''

Unsold Works

Sotheby's auction last night, with unsold works by artists such as Van Gogh and Matisse, showed earlier art is vulnerable too.

In May, Sotheby's $278.5 million total for Impressionist art was in the middle of the range and almost all the works sold. Last night, a quarter of the items didn't sell.

Christie's fared better at its Nov. 6 Impressionist sale than Sotheby's. Still, the total take at Christie's just beat its low estimate before commissions and missed its top estimate by almost a third. In a May auction, Christie's came near to hitting its high estimate.

`Speed of Sound'

``You are looking at an auction market that has come from the speed of light to the speed of sound,'' said Steven Pincus, who runs insurer DeWitt Stern Group's fine-art practice.

Sotheby's went into last night's Impressionist sale with significant risks. Guarantees were handed out for art with an estimated price range of $153 million to $209 million before commissions, based on data in the sale catalog, Koerber said. Sotheby's precommission valuation of the sale was about $355 million to $494 million.

Of 26 lots guaranteed, five didn't sell and 10 sold below Sotheby's estimated range, Koerber said today.

``While we never comment on individual guarantees or guarantee profits,'' Sotheby's spokeswoman Diana Phillips said in an e-mail, ``we have made money on our overall guarantee portfolio year after year and it is our current expectation that we will do so this year as well.''

Van Gogh's ``The Fields (Wheat Fields)'' received no bids and didn't sell. The guaranteed painting was valued at $28 million to $35 million. Georges Braque's ``L'Echo,'' expected to go for as much as $20 million, also failed to sell and carried a guarantee.

Franz Marc's waterfall picture, ``Der Wasserfall (Frauen Unter Einem Wasserfall),'' another guaranteed work, was estimated at $20 million to $30 million before commission, and sold for $20.2 million with commission.

Market Confidence

Sotheby's carries bigger liabilities for its contemporary- art sale on Nov. 14, with about 78 percent of the low value guaranteed, according to Koerber.

For its contemporary-art sale, Sotheby's has guarantees against works valued at $174 million to $220 million, including a Francis Bacon bullfight picture valued at as much as $35 million and an $18 million Mark Rothko, Koerber said. A year ago, Sotheby's guaranteed 35 percent of the value of its contemporary- art sale, she said.

Christie's commitments run to 52 percent of its Nov. 13 contemporary sale, Koerber said.

Neither auction house would comment on the analyst's data.

Sotheby's is scheduled to report results tomorrow that show its third-quarter net loss narrowed to about 39 cents a share, from a loss of 50 cents a year earlier. That's according to a Bloomberg survey of three analysts who provided estimates based on generally accepted accounting principles.

To contact the reporters on this story: Linda Sandler in London at lsandler@bloomberg.net; Philip Boroff in New York at pboroff@bloomberg.net

Last Updated: November 8, 2007 17:42 EST