• by Joe Mandese  @mp_joemandese, September 8, 2005

After losing its second major financial services account in as many weeks, a third financial services player apparently has also given up on Interpublic--Wall Street. In an especially dire research note sent to investors early this morning, securities firm Merrill Lynch downgraded its recommendation for shares of the Interpublic Group of Companies to a "sell" rating. The new rating, which seemed to be underscored in an unconventional blood-red ink, as opposed to the equities firm's normally cheerful lavender hue, carried the equally ominous headline: "Downgrade to Sell: Not a Classic Restructuring Story."

The downgrade by influential Merrill Lynch analyst Lauren Rich Fine is more than symbolic. It signals that the investment community has given up on Interpublic, once the most powerful of the major agency holding companies and the darling of Wall Street analysts and media-savvy investors.

Ironically, the downgrade does not even make note of Interpublic's latest loss--Washington Mutual's account, which Thursday announced it was putting its $100 million-plus media and creative assignment up for review. Incumbent, Interpublic's Sedgwick Rd., formerly the Seattle office of McCann-Erickson, said it would not participate in the review, marking the second big bank account to leave Interpublic in as many weeks. Late last week, financial services giant Bank of America moved its $600 million account from Interpublic to Omnicom, one of the holding company's biggest losses to date. Interpublic is the parent company of media networks including Initiative, Magna Global, and Universal McCann.

The timing of the Wall Street downgrade is noteworthy because it comes before September 30, when Interpublic is scheduled to update its financial statements, which theoretically could lead to some upside in investor confidence and a rally in the company's stock price.

"Ultimately, we are more concerned about recent account losses, only partially offset by wins, which will continue to pressure earnings," wrote Merrill Lynch's Fine. "We are moving to a sell rating as we believe there could be a ripple effect from the [Bank of America] loss. We do not view this as a classic restructuring story, as revenues need to stabilize, which does not seem imminent."

Fine implied that Interpublic is locked in a downward spiral of account activity with "no stability" in sight, noting: "recent account losses and reviews have heightened our anxiety and we continue to maintain that the financial repercussions of the GM media buying loss were greater than management indicated."

Interestingly, the analyst sees virtually no upside for Interpublic, even as liquidation play that some have speculated on.

"While there has been speculation that Interpublic would be a good leveraged buyout candidate, we have trouble arriving at enough upside to offset the potential risks created by a Securities and Exchanges Commission review and diminution of brand equity. Further, we are not certain that financing could be arranged in view of the recent account losses.

In the aftermath of a string of media account losses, Interpublic created a corporate-level media oversight role, and named former MTV Networks Chief Mark Rosenthal to manage it. Recently, Interpublic's beleaguered Universal McCann unit named Nick Brien a well-regarded star within Publicis' advertising and media services empire, as its new CEO.