Distressed Investors Deliver Distressing News

(Correction Below.) On the Tuesday After The Monday After “Sunday, Bloody Sunday” not many investment professionals expressed positive outlooks. You’d think a panel full of distressed and turnaround investors might have been morbidly upbeat, or at least indifferent to watching the kind of turmoil they deal with on a daily basis explode across the entire financial sector.

The group, speaking at Dow Jones’ Private Equity Analyst conference, was possibly the biggest downer of the day.

Mark Patterson of MatlinPatterson opened with melodrama, saying conditions are more challenging than any time since 1929.  (On the conference sidelines, he said the comments were designed to get people’s attention drawn to how serious the situation is.) A year ago, he said he believed there was a 5% chance of the company slipping into depression. Today, that’s soared to 25%, Patterson said. He blames the initial 5% on “the hands off regulatory profile and love affair with leverage.”

Sun Capital’s Rodger Krouse echoed the gloom and doom sentiment, saying, “It’s the toughest environment economically that any of us have seen, in every industry.”

Other dismal discussion topics included the prediction that one of the major auto makers will go bankrupt. WL Ross’s Harvey Tepner said “the automotive business is a great business. But not in the United States.”

Patterson chimed in to say that the US auto industry isn’t doomed, it’s just that the companies have been poorly run. “They have a myopic view of things,” he said. Does he think one of the big three could go bankrupt? “Absolutely.”

Furthermore, Patterson said the bottom is nowhere in sight. “There are lots of people who are piling into what appears to be lowered value companies, but finding out that they’re in 20% too early….And with everyone sitting on fairly large amounts of dry powder, the greatest asset to have today is patience.”

And lastly, Tepner said that, lending-wise, his firm is working under the assumption that every deal will be 100% equity.

Correction (9/26/08): An earlier version of this story incorrectly attributed a quote regarding the potential bankruptcy of a big three auto maker to WL Ross’s Harvey Tepner. The comment was made by MatlinPatterson’s Mark Patterson.