A $3.1bn hit looks puny against the other beefy writedowns on display from Merrill Lynch yesterday. But that charge, relating to the bank's hedges with monoline bond insurers, is in some ways scarier than the $11.5bn hit it took on mortgage-related products. The latter, while disastrous, was well-flagged. Merrill has raised about $13bn of capital to plug the balance sheet hole caused by exposure to the mortgage meltdown.

The insurer-related writedowns are more insidious. They mean some hedges taken to protect itself against defaults on its collateralised debt obligations are not worth the paper they are written on. The worst offender is ACA. Merrill has a trade with the bond insurer that should be worth about $2bn. With ACA now junk-rated, Merrill has been forced to write the value of that down to zero.