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Turnaround Pros See Housing Crisis Lasting Through 2008

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RISMEDIA, Jan. 1, 2008-Still unfurling, the housing “crisis” of 2007 is the source of the top three picks by turnaround professionals predicting the most distressed industries in 2008.

Sixty-two percent of respondents to the Turnaround Management Association’s annual Trend Watch Poll said that homebuilders will face the “greatest financial and/or operational difficulties” next year. With fewer homes being sold and rising foreclosures, businesses that lend to home buyers may take a hit in nearly equal measure. More than a third (35%) said that mortgage lenders will incur the most distress, while 32% said residential loan origination and servicing firms will.

As cracks in the subprime mortgage lending market have quickly spread, the nation’s housing pain appears to have dwarfed the battered automotive industry. That industry topped last year’s list for most distressed industries for 2007, receiving 74% of responses. But in this year’s poll, less than a third of respondents (28%) said that the automotive industry will suffer the most in 2008.

For industries likely to face a serious trouncing, respondents placed the blame more on balance sheets than boardrooms. Fifty-three percent — more than twice that of last year — said too much debt will hobble those industries, and nearly half (49%) said lack of access to capital will. Forty percent identified high-risk deals as likely culprits, but only 33% pegged ineffective management.

“Mortgages are the most visible part of this iceberg,” said Tom Henderson, the Houston attorney who chairs TMA International’s Trend Watch committee. “What started in the subprime mortgage market is likely to infect the entire spectrum of securitized lending products that have become common in the markets over the past several years. The unanswered question is whether this credit-induced trauma is coming to an end, or just beginning.”

The top external factors likely to impair industries will have little to do with the outcome of the U.S. presidential elections and everything to do with the economy, according to the poll. Eighty-eight percent said economic conditions will determine which industries take the hardest pounding in 2008, up from 65% in 2006 and double the proportion of responses from 2005.

Industries expected to improve the most in 2008 will do so in spite of faltering economic conditions and tightened credit. The top three identified by respondents have been on the upswing for at least two years. They are:

Technology, which garnered 33% of responses, up from 28% in 2006
Energy, which received 31% of responses, up from 20%
Healthcare/hospitals, which collected 29% of responses, up from 23%.

Fifty-six percent of respondents said greater demand for products and services will propel industries experiencing the most improvement, while 39 percent said significant restructuring and consolidation within the industry will. Less than a quarter (22%) identified access to capital as a factor.

“The technology sector had gone through its recession at the beginning of this decade and there has since been consolidation and stabilization in that sector,” said TMA President William E.J. Skelly. “The demand for technology at all levels of business has been increasing significantly.”

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