Lehman Brothers, the fourth-largest U.S. securities firm, reduced its mortgage holdings in the second quarter by 20% to curb further losses from the credit-market collapse.

Lehman reported a loss of $2.8 billion, or $5.14 per share, in line with preliminary figures the company released last week. Leveraged buyout loans were cut 37% to $18 billion.

MBIA Inc. reported write-downs of $3.5 billion on souring credit markets Thursday, exacerbating concerns that rising costs could squeeze local governments as well as slow any recovery for big banks.

Citigroup is expected to announce a sizable dividend cut, cash infusion of at least $10 billion and write-down of as much as $20 billion in mortgage-related investments as part of its fourth-quarter earnings report.

This article tries to make sense of the $15bn estimated writedown that Merrill will probably announce with their earnings on Thursday. It covers some of the basics of losses in the cash and synthetic markets. It also focuses on why Merrill may be very conservative in their marks in an effort to make their future performance look better.