Dentsu, Suffering From Bad Investments, Lays Off Staff in America

(MoneyWatch)  Fifteen staffers at DentsuNext have lost their jobs as the company reorganizes its American operations, according to Adweek. The layoffs come after DentsuNext lost the $100 million Suzuki business last year. The Brea, Calif., office of Dentsu had 50 employees at the time.

But the cuts aren't just about lost accounts. If the agency was anywhere near healthy it could absorb some of those employees into parts of McGarryBowen, the agency Dentsu bought for cash in November.

So why hasn't that happened? One answer is to look at the effect the financial crisis has had on Denstu's balance sheets and income statements.

On Jan. 8 Dentsu reported a loss for Q3 of fiscal 2009 due to a "revaluation of securities" the company was holding in its investments.

The booking of a revaluation loss was necessitated by the marked fall of market prices of certain securities held by Dentsu and recognition that the recovery of market prices is uncertain.

Dentsu's revenues fell 5 percent from roughly ¥2,000,000 to ¥1,900,000 (in millions of yen); its net income fell even further, by 30 percent, from ¥36,000 to ¥25,000. The network cut costs by 6 percent even as its revenue base fell by 5 percent. Apparently it was not enough. The company also lowered its outlook for the rest of 2009.

This illustrates a fundamental unfairness of the current recession: That mistakes made by investment bankers have tanked the stock and debt markets, and now companies that were completely unlinked to the subprime mortgage market must cut costs (i.e. jobs) to find cash.

• See BNET's Ad Agency Layoff Counter for more details