“You’re pushed down so low anyhow,” Mr. Hughes said. “What’s more bad news on top of bad news?”

TO BE NOTED: From the NY Times:

"Losses in Good-Will Values Compound Bank Troubles

By JACK HEALY

When times were flush, businesses bought up rivals and absorbed smaller companies to grow as big as possible as fast as possible. But now, those purchases are starting to look a lot like housing bought at the peak of the bubble — overpriced and losing value fast.

Companies are taking billions of dollars in losses as they write down the value of assets known as good will — the amount they overpaid for a business compared with the sum of its parts. As the economy sinks lower and businesses struggle, that good will is going bad.

The losses from these write-downs have already been in the tens of billions of dollars, and analysts say they are likely to continue as companies reassess the value of old deals in the light of faltering stock markets, declines in real estate and weak corporate revenues.

“It’s not the end of the tragedy,” said Feng Gu, an assistant professor at the State University of New York at Buffalo and an author of a paper on good-will impairments with Baruch Lev, a professor at New York University. “Things continue to get worse.”

For the nation’s banks, which are already bracing for another spate of big losses from commercial real estate loans and credit card businesses, the rapid declines in good will represent another potential source of losses.

Banks wrote down more than $25 billion in good will in 2008, up sharply from $790 million a year earlier, according to data compiled by Frank Schiraldi of Sandler O’Neill & Partners. By the end of the year, banks still had $291 billion worth of good will on their books. An incomplete tally of write-downs from the first quarter showed that banks had taken a $3.5 billion hit to good-will values.

For some companies, the losses will be staggering.

Before it was scooped up in a merger with Wells Fargo last year, the Wachovia Corporation cut the value of its good will by $18.7 billion, largely from its purchase of the troubled mortgage lender Golden West Financial and other acquisitions that took on water as housing markets sank and the economy hurtled lower.

Macy’s took a good-will charge of $5.4 billion in 2008. In February 2008, the cellular carrier Sprint Nextel wrote down $30 billion from Sprint’s purchase of Nextel.

Companies characterize the hits as nothing more than accounting losses, a revaluing of assets that were not tangible to begin with. And they say the write-downs do not threaten their credit, their cash flow or their long-term health.

“It was just a paper entry sitting on your balance sheet,” said Rex S. Schuette, chief financial officer of United Community Banks, which wrote down $70 million of good will in the first quarter.

But the losses take a real bite out of corporate earnings, like a first-quarter good-will charge of $2.6 billion at Huntington Bancshares that contributed to its $2.4 billion first-quarter loss. And they could lead to more declines in company share prices as many are grappling with declining market value, crumbling real estate portfolios and lower revenues.

“Investors will have to be wary of these things,” said J. Edward Ketz, an associate professor of accounting at the Pennsylvania State University, who has studied good will. “You never know when an intangible asset is going to be written off.”

If nothing else, the decline in the value of good will shows that corporations across the spectrum spent far too much during the merger mania of the last decade, analysts said. As the markets roared higher, companies looked at their rising share prices like lottery money, and deployed their stock to go on a buying binge, eager to show shareholders growth and expanding sources of revenue.

If the mergers were lavish wedding ceremonies, the slumping value of the good will has been the rocky marriages that followed.

“If they overpaid for it and they have to take a write-down, that definitely is an indicator that they overpaid, and that the corporate acquisition group is not doing its job that well,” said William Hughes, managing director of the Valuation Research Corporation.

The value of good will represents intangible qualities like the value of a company’s brand name, its customer base and reputation. Every year, companies that list good will as a leftover asset from mergers have to test its value to see whether it has held up.

SunTrust Banks, based in Atlanta, had been monitoring its $7 billion in good will every quarter since the end of 2007, and cut its value by $715 million this spring. The bank said it had made the write-down because economic declines had continued to hammer its mortgage and commercial real estate assets.

“There’s been some erosion in financial performance, but the uncertainty and sentiment in the marketplace has also had a meaningful effect,” said the bank’s controller, Thomas E. Panther.

For the quarter, SunTrust reported a net loss of $815 million but said the good-will charge had no effect on its levels of capital required by government regulators. It also said that some signs of improvement in deposits and mortgage lending were emerging and that it thought it had revalued its good will to match current conditions.

Although SunTrust played down the significance of the write-down, the analysis of good-will losses by Mr. Gu and Mr. Lev found that they often presaged rough waters ahead. If the write-downs mount, they can lead businesses to cut jobs, reduce capital investments, slash budgets and close plants.

Still, the losses don’t mean that businesses have less money to pay off their debts, or that they are on the brink of insolvency. And with investors already bracing for the worst, some analysts said the good-will write-downs did not provide much additional shock.

“You’re pushed down so low anyhow,” Mr. Hughes said. “What’s more bad news on top of bad news?”

Louise Story contributed reporting."