“It's a disaster. This thing's broken. They're going to throw people overboard.” So groaned a shellshocked senior Interpublic Group staffer, speaking to the New York Times under a guarantee of anonymity.

Interpublic, world number two agency conglomerate (after WPP), on Wednesday sent shock waves racing through Wall Street and an after-hours New York Stock Exchange with a statement warning of an earnings plunge and further accounting inconsistencies. According to the NYT, the waves could rapidly become a tsunami swamping “the highest levels of the agency company”.

The IPG news release revealed that an ongoing internal review of improperly accounted expenses at McCann-Erickson’s European operations has uncovered yet more problems. On August 13, Interpublic said the resultant restatement was $68.5 million (€70.16m; £44.20m); yesterday it amended that figure to an amount “not expected to exceed $120 million”.

The group has now lowered its earnings forecast for the third quarter to 8-10 cents a share. By comparison, analysts’ consensus estimate had been 28 cents a share.

A statement by chairman and chief executive John J Dooner Jnr formed part of the news release: “It is regrettable,” he said, “that we have had to revise our earnings forecast, but this new guidance reflects the difficult economic conditions we are facing around the world. We are dealing with our short-term issues in marketing services aggressively and directly.”

Interpublic also revealed that certain other marketing-services operations in sectors such as corporate identity consulting and retail promotion, had suffered “significant deceleration” in the third quarter. The statement warned there would be additional severance expenses related to cutbacks in those areas.

Although the statement did not identify the problem units, Advertising Age and AdWeek were less reticent, pinpointing two McCann-Erickson divisions: corporate identity consultant FutureBrand and Momentum, a promotion and event marketing agency. Both shops have missed their earnings projections, partly due to the switching of clients budgets to more traditional avenues like TV.

Billings for Interpublic agencies last year were estimated at $66.7 billion. Revenues were $6.7 billion, plunging the group into a net loss of $505.3 million, reflecting not only the advertising recession but also internal difficulties.

In the wake of the statement, Wall Street reacted in after-hours trading by down-pricing Interpublic’s shares by $5.30 (32.5%) to $11.00, below the group's 52-week low of $12.75.

• Number three holding company in the world agency pecking order, Omnicom Group, has recently reassured investors that its third-quarter earnings projections will be met.

Data sourced from: New York Times; additional content by WARC staff