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ROBERT SIEGEL, HOST:

It's ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.

MELISSA BLOCK, HOST:

And I'm Melissa Block. Spanish banks are drowning in debt left over from the housing crash. Now, with the help of an up to $125 billion loan from Europe, Spain is overhauling its entire banking system. Part of that process involves investors, nicknamed vultures, who feed off dead or dying economies. From Madrid, Lauren Frayer explains.

LAUREN FRAYER, BYLINE: Just down from Madrid's famed Prado Museum is the posh Palace Hotel where rooms cost up to $6,000 a night. Back in the day, it was Hemingway's old haunt, or at least the bar was. Now, it's swarming with a different type of foreigners in expensive suits.

FEDERICO STEINBERG: Probably they are institutional investors, hedge funds, sovereign wealth funds.

FRAYER: Economist Federico Steinberg at Madrid's Elcano Institute.

STEINBERG: There's a lot of cash around the world and lots of looking for bargains.

FRAYER: These expensive suits who've descended on Madrid on recent weeks are bargain hunters, what economists call vultures who feed off dying economies. Three such investors spoke to NPR off the record, explaining why they're here.

One of the conditions of Spain's bailout is that banks get rid of their toxic assets, things like unpaid mortgages, devalued property or shares in struggling companies. Banks need to sell those assets quick, even at a loss, to wipe their slates clean, so in swoop the vultures, who are often some of the richest investors in the world, like Donald Trump, speaking last month on CNBC.

DONALD TRUMP: Spain's a great place. It's a great country. It's got a lot of problems. It's got too much debt, but what an opportunity. You know, just talking about all of those empty homes and apartments and they're probably selling for nothing.

FRAYER: Rich investors have been hounding people like Jose Enrique Concejo, a local investment banker who serves as a go-between for vultures seeking deals in Spain. And what kind of deals are on offer?

JOSE ENRIQUE CONCEJO: It depends entirely on what we're talking about, but if you're talking about land, 80, 90, 95 percent discount. If you're talking about finished housing, probably 30, 40 percent, so it depends on the asset, but in any case, you are now getting a better deal than any time over the last 10 years in Spain.

FRAYER: Spanish banks are essentially holding a massive garage sale. The government hasn't stepped in to officially launch or regulate the process yet, but Concejo says he's already facilitating deals and that the best bargains are often the first ones.

CONCEJO: You may actually miss out on relatively smaller or less publicly known opportunities if you wait, so some of the large opportunities will be formally auctioned and will be known, but if you're interested in getting a small portfolio from a particular entity, you may not know about it unless you start talking to people locally.

FRAYER: That's what it means to be a vulture. You dive in to get early deals before the ink is dry on any official bank restructuring rules. Those are expected to be signed later this month. It could be left up to Spanish banks themselves to sell off their bad assets and keep the good ones, but another option appears to be gaining steam. The creation of a so-called bad bank.

CONCEJO: It's a bad name because it's not a bank and it's not bad, necessarily.

FRAYER: Concejo says it's more like a state holding company that sells off assets for all the banks. There is one country that's been through this already: Ireland. The bad bank set up there has been slow to sell off assets, but at least the process has been transparent, says economist Philip Lane at Trinity College Dublin. He fears that, in Spain, the whole process could be vulnerable to corruption without such a central entity.

PHILIP LANE: You can imagine some shady investor trying to make a side deal or a secret deal to pay a price that's below the market price and share the difference with, say, some manager and some bank or whatever.

FRAYER: Lane acknowledges that the term, vulture, connotes some sinister intentions.

LANE: Lots of them are motivated by finding the best deal they can find, but that's OK. I mean, a market is half of a buyer and a seller and you do expand the pool of sellers by, you know, being open to international investors, including U.S. vulture funds and so on.

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FRAYER: Back in the posh hotel lobby, the vultures are circling. They smell bargains and perhaps some fine Spanish sherry, too. The challenge for Spain will be to strike a balance between courting the vultures and being taken for a ride.

For NPR News, I'm Lauren Frayer in Madrid.

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