Writedown

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A writedown occurs when a corporation reduces the value of an asset on its balance sheet because it was previously over-valued compared to its market price. Banks worldwide have been forced to make huge writedowns in the value of some of their debt securities as global credit markets froze amid the recent credit crisis.

Writedowns (also written as write downs or write-downs) cut the book value of a company's asset and are usually recorded on income statements as an expense, which reduces its net income. A writeoff, by contrast, completely eliminates the entire value of the asset from the company's balance sheet.

Right down

In 2008, banks around the world were forced to write down hundreds of billions of dollars from the value of debt instruments such as mortgage-backed securities and credit default swaps as the 2007-2008 credit crisis dried up the market for such securities. The Royal Bank of Scotland, for example, was expected to slash between $1.5 billion and $4.6 billion for the second half of the year after a writedown of around $9 billion in the first half on the value of its debt securities.

Earlier in the reporting period, U.S. mega-bank Citigroup and former brokerage powerhouse Merrill Lynch, now part of Bank of America, were both forced to write down billions more dollars from their credit securities portfolios. Citigroup wrote down $71 billion in such securities while Merrill Lynch cut about $50 billion from its value since the credit crisis began in late 2007.

Estimates vary on total credit-securities losses through writedowns of the world's major financial institutions, although one source estimates the figure from the 15 biggest losers at almost $600 billion. Citigroup led the losers followed by U.S. banks Wachovia (now owned by Wells Fargo), Merrill Lynch and now-bankrupt Washington Mutual.