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BANKS have taken a uniquely brutal pummelling of late, but they are not alone in having to write down overvalued assets accumulated in the boom. Financial and non-financial firms alike face a reckoning on “goodwill” amassed during the long merger wave that subsided last year.

Goodwill is an intangible asset that represents the extra value ascribed to a company by virtue of its brand and reputation. When one firm buys another, the targets goodwill—essentially the premium paid over its book value—is added to the combined entitys balance-sheet. Goodwill and other intangibles on the books of companies in the S&P 500 are valued at $2.6 trillion, or 10% of their total assets, according to analysts at Goldman Sachs.

As the economy deteriorates and more firms trade down towards (or even below) their book value, empire-builders are having to mark down the value of assets they splashed out on in rosier times. A recently announced $25 billion goodwill charge is expected to push Time Warner into an operating loss for 2008, for instance. Michael Moran of Goldman Sachs thinks such hits could amount to $200 billion or more over the cycle. Investors have so far paid little attention to intangibles, but as write-downs proliferate they are likely to become increasingly wary of industries with a high ratio of goodwill to assets, such as health care, consumer goods and telecoms.

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How bad things get will depend on the beancounters. American firms used to be allowed to amortise goodwill over many years. Since 2002, when an accounting-rule change ended that practice, goodwill has had to be tested every year for impairment. In this stormy environment, with auditors keener than ever to avoid being seen to go easy on clients, companies are being told to mark down assets if there is any doubt about their value.

The sanguine point out that this has no effect on cashflow, since such charges are non-cash items. Moreover, some investors take goodwill write-offs with a pinch of salt, preferring to look past such non-recurring costs and accept the higher “normalised” earnings numbers to which managers understandably cling. The largest companies are thus able to survive thumping blows that might otherwise floor them, such as the $99 billion loss that the newly formed but ill-conceived AOL Time Warner, as it then was, reported for 2002. But the impact can be all too real, as write-downs reduce overall book value and increase leverage ratios, a particular concern in these debt-averse times.

The effect on the share price depends on the extent to which the market has already absorbed the lost value. On January 19th Royal Bank of Scotlands shares collapsed as the British government raised its stake and the battered lender said it could report Britains largest-ever corporate loss after an impairment charge on its takeover of ABN AMRO, a Dutch bank. And Regions Financial, an American bank, lost a quarter of its value on January 20th after taking a $6 billion goodwill charge on its $10.5 billion purchase of AmSouth Bancorp.

Such hits can also sap investor confidence less directly, by raising awkward questions about managers competence. If overpaying hugely for a rival does not count as inept, then what does?