A flock of "vulture" funds is gathering in Madrid in the hope that a banking sector shakeout will finally deliver a bonanza of real estate and distressed company assets at rock bottom prices. Hedge funds and private equity houses are renewing ties with Spanish lenders and government officials, bankers said, as reforms push banks to offload troubled assets at steep discounts.
"They want to make sure they're among the first five people we call up when assets from the banks start moving," said a senior investment banker who spent the last two weeks shepherding such investors around the Spanish capital. Vulture funds, which were a regular sight at Dublin airport when Ireland's banks were in turmoil, have swooped on Madrid's plush Palace Hotel, shuttling up and down the Castellana avenue, one of the capital's main arteries and home to investment bank offices and Spanish banks.
Previous trips to Spain had ended in disappointment. The funds had been looking to bag portfolios of repossessed properties or consumer loans at 20 cents in the euro, bankers said, while lenders hoping for an economic pick-up had been reluctant to contemplate selling below 50 percent of face value. But now fresh bank reforms will force Spain's banks, particularly those getting public help, to set aside repossessed property by year-end for a fire-sale, while provisions to counter 137 billion euros ($169 billion) of potential losses should make it easier to sell assets at steep discounts.
Some believe that is already having a knock-on effect on prices, with another banker saying funds were "smelling blood". "The price at which banks would be willing to sell and investors willing to buy has narrowed a lot. That is a fact," said a Madrid-based lawyer who has advised savings banks, or cajas, on restructuring.
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