• by Joe Mandese  @mp_joemandese, March 10, 2009

Omnicom, once indisputably the world's largest advertising and marketing services company, is losing market clout and has taken a major hit from a highly regarded Wall Street equities firm. In a note issued to investors early this morning, Deutsche Bank ad industry analyst, Matthew Chesler downgraded Omnicom's stock to "sell" from "hold," due to the increased pressure from clients to reduce fees, and the impact that will have on Omnicom's margins. The downgrade comes a day after ad industry bible Advertising Age published a story crowning Martin Sorrell's WPP Group the new dominant agency holding company, based on estimates of "reported revenue."

But Omnicom, the parent of OMD, PHD, and agencies such as BBDO, OMD and TBWA/Chiat/Day, remains the biggest agency holding company on Wall Street, if not Madison Avenue, albeit by a slim margin.

Based on Monday's closing price of their shares, Omnicom has a stock market capitalization of Omnicom: $7.02 billion vs. $6.87 billion for WPP Group, according to estimates compiled by Reuters.

If Deutsche Bank's Chesler is right, that ranking could also change soon.

"Although we do not think the pace of reductions in client spend has accelerated materially over the past three weeks relative to our prior expectations, we do think that downward pressure from clients on fees is growing more intense and that the negative impact on operating leverage will be higher," Chesler write, revising his firm's outlook for Omnicom's target share price from $26 to $19. Omnicom closed Monday with a price of $22.06 per share, according to Reuters.

In fact, Deutsche Bank doesn't see much upside for Omnicom, which it expects to have an eroding economic model for the foreseeable future.

"The bull case on Omnicom has been that the company's flexible operating model would enable it to largely contain margin contraction associated with declining marketing budgets," Chesler opined. "Our analysis and conversations with execs at last week's [American Association of Advertising Agencies media] conference in New Orleans, however, show that this is easier said than done, particularly given comments that agency leverage in fee negotiations appears somewhat overstated."