Merrill Lynch on Thursday reported the worst quarter since it was founded nearly 100 years ago, saying it lost $9.8bn in the last three months of 2007 following more than $15bn in asset writedowns.

The writedowns included $3.1bn related to contracts Merrill entered into with bond insurers to hedge against losses. Such groups, especially ACA Capital, are under heavy pressure, raising doubts about the quality of the insurance they provide.