Ad agencies on Madison Ave feel Wall Street pain

By Paul Thomasch

NEW YORK (Reuters) - Just a few miles north of Wall Street, shockwaves from the financial crisis are reverberating through the advertising agencies of Madison Avenue.

Not that business was particularly rosy for the advertising industry before Lehman Brothers, Merrill Lynch and American International Group made headlines this week and threw the financial sector into turmoil.

Automakers have already heavily cut spending, while retail, technology and telecommunications companies have put budgets under review amid the economic downturn. Forecasters were curtailing overall ad spending projections for this year and next, and financial services were already considered a weak spot thanks to the housing troubles.

This week's upheaval only makes matters worse.

"We're looking at a degradation of spending in big multiples. I'm talking about double-digit declines next year," said Zain Raj, chief executive of Euro RSCG Discovery, a unit of France's Havas advertising company.

He added: "Normally, when Wall Street sneezes, Madison Avenue ignores it. In this case, Wall Street has pneumonia and Madison Avenue better realize it."

For the advertising industry, automotive, retail and pharmaceutical marketing still brings the most revenue, though financial services is perennially among the top 10 categories. Last year, the financial services industry spent about $9.2 billion on advertising, accounting for roughly 6 percent of total spending in the United States.

According to TNS Media Intelligence, Citigroup was the biggest spender in the category, forking out $451 million, followed by Bank of America at $406 million and JPMorgan Chase at $295 million.

Among the spending most at risk, AIG put $119 million into advertising in the United States, Merrill Lynch spent $37 million and Lehman Brothers spent just over $1.2 million.

Advertising executives point out that the current crisis extends beyond financial services -- it undermines confidence across the business world. As confidence drops, marketing budgets often follow.

"I think the influence is far greater than their actual spending as a category," said Charlie Rutman, North American Chief Executive of MPG, a media planning agency and unit of Havas.

"If you're a casual dining chain, and you come in to work this morning, do you really think that Middle America is going to be flocking to restaurants with these headlines? The residual effect of these kinds of things is huge."

While the largest portion of spending by financial services is geared toward TV, any cuts may be felt most sharply for radio and print since they are already under pressure. In 2007, radio and print accounted for about half of the spending by financial services, TNS estimates.

Financial services tend to advertise heavily in business publications, such as Time Warner Inc's Fortune Magazine, The New York Times Co, and the Wall Street Journal owned by News Corp.

"It was an uncertain client community. The economy wasn't in great shape before. The economic forecasts weren't great before," said Rutman. "Now what's going on has really increased the uncertainty."