Two More Banks Fail

NEW YORK (CNNMoney.com) — Two more banks shut their doors Friday, according to the federal government, bringing the total number of failures up to 31 in 2009.

The first failure was a wholesale banking operator that served 1,400 other lenders across the country and was the fifth biggest bank failure during the current recession in terms of assets.

Georgia “bankers’ bank”

The Federal Deposit Insurance Corp. said in a statement that it created a bridge bank to take over the operations of Silverton Bank, National Bank, headquartered in Atlanta.

Unlike the other 30 banks that have failed so far in 2009, Silverton Bank did not take deposits directly from the general public or make loans to consumers. Instead, it was a “bankers’ bank,” offering a wide variety of services, such as foreign wire transfers, as well as clearing and cash management, to other banks.

Silverton was cooperatively owned by community banks throughout the Southeast and was heavily invested in loans to real estate developments in Florida, Georgia, and other parts of the Southeast, according to Christopher Marinac, managing principal of financial firm FIG Partners LLC based out of Atlanta, Ga.

When real estate values sank in the current downturn, the assets backing those properties also lost their value. The Southeast has seen numerous regional banks topple as the housing bubble burst.

At the time of its closing, Silverton Bank had approximately $4.1 billion in assets and $3.3 billion in deposits, all of which are expected to be within the FDIC’s insurance limits.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $1.3 billion, making it the fourth costliest bank failure since the start of the recession. “It is a bigger hit to the insurance fund than they have seen in the last couple weeks,” Marinac said. “This is a bigger issue than we have seen in awhile.”

Silverton served banks in 44 states and operated six regional offices. The FDIC created a bridge bank to take over the assets of the institution and has contracted The Independent Bankers Bank, out of Irving, Texas, to assist. The FDIC does not expect to see any significant impact to the bank’s clients, at least in the near term.

However, the bridge bank only plans to be operational for 60 days, with a possible 30-day extension. When the bridge bank services terminate, the banks that were serviced by the cooperatively owned bank will have to go out and find another institution to take care of those services.

“There is no clear cut answer on a situation like this,” said Marinac. “This is a little bit more complex and therefore there are more uncertainties about how this will unfold.”

Thus far, the FDIC has not been able to find another wholesale bank to agree to take over Silverton’s operations. The FDIC will attempt to sell off the assets, but it could pose a challenge to find a buyer for risky commercial loans. However, the FDIC could try to find a buyer by discounting the debt. “Everything has a price,” said Marinac.

New Jersey bank shuts

State regulators shut down Citizens Community Bank Friday night, and named the FDIC as the receiver. The Ridgewood, N.J.- based bank had total assets of approximately $45.1 million and total deposits of $43.7 million as of December 31.

North Jersey Community Bank, of Englewood Cliffs, N.J., has agreed to assume all of the deposits of the failed bank. The failed bank’s single office will reopen Monday as the North Jersey Community Bank.

North Jersey Community Bank paid a premium of 0.67% to acquire all of the deposits of the failed bank and has agreed to purchase approximately $11.5 million in assets. The FDIC will hold onto the rest of the assets to dispose of later.

Through the weekend, depositors of Citizens Community Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the failed bank will continue to be processed, and the FDIC said loan customers should continue to make their payments as usual.

The FDIC will continue to fully insure individual accounts up to $250,000 through the end of 2009.

Stress tests awaited

Local banks have been shutting down in droves as the recession has made it harder for customers and businesses to pay their loans. Nearly every Friday so far this year, at least one bank has failed. Last week, four regional banks were shuttered.

Even as the government has committed unprecedented amounts of money to increase liquidity and jumpstart the economy, the pace of bank failures has accelerated. In all of 2008, 25 banks failed, compared with 2009’s 31 banks.

It is not only smaller, regional banks that have felt the pressure of the recession. The nation’s largest banks have also been hit by rising default rates and a decline in business spending.

Among the big banks that have received government aid, Citigroup and Bank of America have each received $45 billion in funds from the government’s Troubled Asset Relief Program, or TARP.

In order to assess the health of the nation’s financial industry, the Obama administration has unveiled details of its plan to conduct “stress tests” on 19 of the nation’s largest banks.

The assessment of the bank’s health was expected to be made public May 4, but an announcement from the Treasury Department Friday indicated that results would be delayed until May 7.

Market watchers are anxiously awaiting the results of the stress tests, which have been designed to assess the banks’ preparedness to weather further downturns in the economy, including further increases in unemployment and decreases in home prices.

Chrysler Files For Chapter 11

WASHINGTON — Chrysler filed for bankruptcy protection Thursday and announced it will temporarily halt most of its vehicle production while it completes a deal with Italian carmaker Fiat in an effort to revive the nation’s ailing third-largest automaker.

The Obama administration said it had long hoped to stave off bankruptcy, but it became clear that a holdout group of creditors wouldn’t budge on proposals to reduce Chrysler’s $6.9 billion in secured debt. Clearing those debts was a needed step for Chrysler to restructure by a government-imposed Thursday deadline.

Chrysler now has “a chance not only to survive but thrive” thanks to the deal with international car company Fiat and loans from the government, President Obama said Thursday.

He said the company’s decision to file for bankrupcy “is not a sign of weakness,” but rather a necessary step that will allow the company to survive.

Chrysler filed for Chapter 11 bankruptcy protection in New York with the hopes of emerging in as little as 60 days under the new partnership with Fiat.

Banks To Write Down Chrysler Debt

NEW YORK (CNNMoney.com) — The major banks that loaned Chrysler LLC about $7 billion have agreed to significantly reduce that debt, according to the Treasury Department, a move that could save the struggling automaker from having to file for bankruptcy later this week.

“The agreement from Chrysler’s principal banks is an exceptional accomplishment in line with the President’s firm commitment that all stakeholders sacrifice to make this deal succeed,” said an administration official Tuesday.

The company still needs to win a rank-and-file ratification vote Wednesday of a tentative labor deal reached with leadership of the United Auto Workers union late Sunday, and wrap up an alliance with Italian automaker Fiat before the Thursday deadline set out by the federal government.

But the deal with lenders was generally thought to be the most difficult hurdle the company had to clear in the final week before the deadline.

Details of the debt reduction deal were not immediately available. The Washington Post reported that creditors agreed to cut the $6.9 billion in secured loans owed to them to $2 billion in return for an equity stake in a reorganized Chrysler.

Consumer Confidence Gets Boost

NEW YORK (Reuters) — A key index of consumer confidence rose in April to its highest this year with some expectations the economic downturn may be reaching a bottom.

The Conference Board’s sentiment index climbed to 39.2 this month from an upwardly revised 26.9 in March. The April reading, which was above economists’ median expectation for a reading of 29.8, was the highest since November 2008.

The increase in the index was the highest seen since November 2005, in the aftermath of Hurricane Katrina.

The original March reading was 26, which was near an all-time low for the index, which dates back to 1967.

The survey’s expectations index jumped to 49.5 this month from 30.2 in March.

“The sharp increase in the expectations index suggests that consumers believe the economy is nearing a bottom, however this index remains well below levels associated with strong economic growth,” said Lynn Franco, director of the industry group’s Consumer Research Center.

Consumers assessment of present-day conditions improved moderately, with those claiming business conditions are “bad” easing to 45.7% from 51%, while those claiming business conditions are “good” rose to 7.6% from 6.9%.

Consumers expecting business conditions to worsen over the next six months declined to 25.3% from 37.8%, while those expecting conditions to improve rose to 15.6% from 9.6% in March.

Apple Jumps Back Into Fortune 100

Reflecting a strong 2008 in which its earnings — if not its stock price — jumped sharply, Apple this week made its first appearance in the top 100 of the Fortune 500 since Steve Jobs’ return.

Apple has been a Fortune 500 company since 1983, but it fell off the top 100 on Fortune magazine’s list of America’s 500 largest companies in 1995, while Jobs was running NeXT.

Apple jumped an impressive 32 spots this year to land at No. 71, thanks in part to the declining fortunes of some of the firms that were above it, but mostly to revenues that grew 35.3% to $32.479 billion in 2008.

Other companies made larger leaps — URS Corp. had the biggest, jumping 185 spots to No. 264 — but they were all considerably smaller than Apple. None landed in the Fortune 100.

The Fortune 500 issue is dated May 4 but was released this week online. The big news this year is that Exxon Mobil displaced Wal-Mart at the No. 1 spot.

Among Apple’s largest U.S. competitors, Hewlett-Packard came in at No. 9, Dell at No. 33 and Microsoft at No. 35.

Consumer Prices Drop For First Time Since 1955

NEW YORK (CNNMoney.com) — A key index of prices paid by consumers fell in March and registered its first annual decline since 1955, the government said Wednesday, as prices for energy and food slumped in the weak economy.

The Consumer Price Index, the Labor Department’s key measure of inflation, declined 0.1% in March, after climbing 0.4% the previous month. Economists surveyed by Briefing.com had forecast a 0.1% rise in the latest reading.

The index is down 0.4% over the last year, the first 12-month decline since August 1955, the government said.

Energy prices fell 3% last month, after increasing 3.3% in the prior month, while food prices declined 0.1% in March.

The closely watched core CPI, which strips out volatile food and energy prices, rose 0.2% in March after a 0.2% rise the month before. Economists were expecting a 0.1% gain. Core CPI has risen 1.8% over the past year.

The increase in core CPI was due mostly to an 11% rise in prices for tobacco and smoking products. Many retailers increased tobacco prices in March ahead of a federal tax hike that went into effect April 1.

The government said Tuesday that its Producer Price Index, a measure of prices paid at the wholesale level, fell more than expected last month. PPI declined 1.2% in March after a 0.1% increase the month before.

Fiat-Chrysler Deal Hangs In The Balance

MILAN (Reuters) — Fiat SpA’s chief executive, facing a two-week deadline to work out a partnership with Chrysler LLC, warned the troubled U.S. carmaker’s unions he would ditch the idea unless they agreed to cut labor costs. In a clear message to U.S. and Canadian unions, Sergio Marchionne told Wednesday’s Globe and Mail newspaper a deal on the partnership had only a 50-50 chance of succeeding because of lack of progress in talks with union leaders. Canadian unions were especially resistant, he said.

“Absolutely we are prepared to walk. There is no doubt in my mind,” Marchionne said in an interview posted on the Toronto newspaper’s website. The Chrysler unions had to agree to match the lower labor costs of plants run by Japanese and German carmakers in the United States and Canada, he said.

Under the latest version of the companies’ proposed partnership, first announced in January, Fiat would take an initial 20% stake in Chrysler in exchange for the technology to make small cars and access to foreign markets. They are under pressure to reach a deal on the proposal with Chrysler’s unions and bondholders before an April 30 deadline set by the U.S. government. Chrysler has been warned by Washington that it would go into bankruptcy if it fails to complete the deal, designed to save the smallest of Detroit’s Big Three car makers.

It has about $7 billion of secured first-lien loans from U.S. private equity firm Cerberus Capital Management’s acquisition of the automaker in 2007. Those lenders have refused efforts to eliminate most if not all of that debt. If a deal is reached, Chrysler stands to get at least $6 billion in additional funding from the government. It has received $4 billion so far. For Fiat, a deal would give it access to the huge U.S. market and help it gain the scale it says it needs to survive the worst industry crisis in decades.

Fiat would bring to North America its popular Cinquecento (500) small car as early as next year, while its premium Alfa Romeo brand would make cars in either Canada or the United States, Marchionne told the newspaper. Whatever it takes Short of having Fiat inject cash into Chrysler, Marchionne said he would do whatever it took to save the U.S. carmaker, including becoming chief executive. “Fundamentally, that’s possible, but the title isn’t important,” he said. “What’s important is that they hear me. It’s possible that I will have to divide my time between running Fiat and running Chrysler.”

He said he expected some of Chrysler’s plants to close under the partnership. The newspaper said Marchionne would not offer odds on a bankruptcy, other than to say that a filing for Chapter 11 bankruptcy protection was “an option” in the absence of a partnership agreement. He would also not rule out a Chapter 7 liquidation filing, it said. Cerberus owns 80.1% of Chrysler and Germany’s Daimler AG 19.1%. Fiat shares were up 2.7% at 7.03 euros. The DJ Stoxx auto index was down 0.4%.

Wells Fargo Delivers Surprise $3 Billion Profit

NEW YORK (CNNMoney.com) — Wells Fargo delivered a much-needed bit of good news for the banking sector Thursday, saying it expected to book a better-than-expected profit of approximately $3 billion in the most recent quarter.

The announcement not only sent Wells Fargo stock 25% higher in midday trading, but boosted shares of many other big banks as investors bet that Wells’ peers may also post results that exceed Wall Street’s estimates. Bank of America , which will report its results on April 20, gained 30%.

Originally slated to deliver its results later this month, the San Francisco-based Wells Fargo issued guidance for the first quarter, saying it expected to report a record profit of about $3 billion, or 55 cents per common share. Expectations are for the company to book a profit of 28 cents a share, according to Thomson Reuters.

“Our business momentum is strong, and we expect our operating margins to remain at the top of our peer group,” Wells Fargo CEO John Stumpf said in a statement.

Wells Fargo attributed the strong results to healthy lending margins driven by lower interest rates, fewer additional costs related to its purchase of Wachovia and a boom in mortgage activity.

Mortgage applications surged during the quarter, with the company reporting $83 billion in applications during the month of March alone.

Wells Fargo also said Thursday its recent purchase of Wachovia was exceeding expectations. The company announced plans to acquire Wachovia, which was on the verge of collapse during the height of the credit crisis, last October.

Since the deal completion’s late last year, customers that had been concerned about Wachovia’s health have been returning, Wells Fargo said, which helped drive loan and deposit growth in the current quarter .Wells Fargo said that Wachovia accounted for 40% of combined revenue in the quarter.

Until now, there have been persistent fears that further deterioration across Wachovia’s shaky loan portfolio would mean more writedowns for Wells Fargo.

But top executives at the firm reiterated their confidence in the purchase, which has drastically expanded Wells’ footprint in both the Southeast and the Mid-Atlantic.

“Wachovia’s outstanding franchise has proven to be everything we thought it would be when we announced this acquisition,” said Stumpf.

Just a quarter ago, Wells Fargo swung to a $2.6 billion loss, hurt by a charge related to the Wachovia purchase and rising credit costs.

A repeat performance?

With Wells Fargo giving such an upbeat forecast, the market’s attention now turns to the nation’s remaining big banks.

Next week, a trio of the nation’s largest banks will report their numbers starting with Goldman Sachs. Following closely behind are JPMorgan Chase and Citigroup, which are expected to deliver their results next Thursday and Friday respectively.

Analysts expect most of the big banks to report a profit in the quarter, with the notable exception of Citigroup.

A modest uptick in capital markets activity as well as a surge in mortgage refinancings over the last three months has helped turn the tide, analysts said.

The increased mortgage activity helped Wells Fargo this quarter, and many industry observers believe that other big mortgage lenders and servicers will also benefit from the latest refi boom.

“That should roll through to the BofA’s, JPMorgan Chase’s and Citi’s of the world,” said Robert Maneri, managing director at Victory Capital Management, whose firm owns shares of all three banks.

Top executives at all three firms made headlines last month after indicating that they were profitable during the first two months of the year.

A numbers game

But some analysts are still skeptical. Earlier this week, bank stocks swooned after Calyon Securities analyst Mike Mayo warned that many of the nation’s leading banks have written down the loans on their books by only a fractional amount, and added that loan-loss ratios would exceed peak levels from the Great Depression.

There are also fears that last week’s move by the Financial Accounting Standards Board to relax the rules that banks rely on to value some of their assets could allow lenders to take greater liberties with their results.

Others worry that banks may try and postpone building their loan loss provisions this quarter in an attempt to make their results appear that much more rosy for regulators who are currently “stress testing” the books of the nation’s largest banks in an effort to determine if they may need to raise additional capital.

“Banks are seeking to avoid having to raise additional common equity and reporting strong first quarter earnings could help them in that effort,” said Ed Najarian, head of bank stock research for ISI Group.

At Wells Fargo, the company set aside just $1.3 billion for future loan losses during the quarter, a level that some say doesn’t square with the current economic environment and an unemployment rate of 8.5%.

“The low level of net credit losses and low level of loan loss provisions will prove unsustainable,” Najarian said.

Nevertheless, shares across the banking sector were sharply higher in Thursday afternoon trading. JPMorgan Chase climbed 12% while Citigroup was up 10%

Obama In Turkey

ANKARA (Reuters) – U.S. President Barack Obama told Turkey’s largely Muslim but secular democracy on Monday the United States was not at war with Islam and that it wanted to reinvigorate efforts toward creating a Palestinian state. Obama reiterated the U.S. position after the new Israeli foreign minister said last week Israel was not bound by a U.S.-backed deal to start talks on establishing a Palestinian state.

“Let me be clear: the United States strongly supports the goal of two states, Israel and Palestine, living side by side in peace and security,” he said in a speech to Turkey’s parliament. Chief Palestinian peace negotiator Saeb Erekat welcomed Obama’s words, saying he had made a major commitment to the two-state solution. Israeli Prime Minister Benjamin Netanyahu’s office said Israel was committed to reach peace and would cooperate with the Obama administration to achieve that goal. Obama is on the last leg of his debut trip on the world stage as president.

Turkey is also his first to a Muslim country as president, a visit closely watched in the Islamic world. He is trying to rebuild ties with Muslims after anger at the invasion of Iraq and war in Afghanistan, made more urgent by a resurgent al Qaeda and Taliban insurgency in Afghanistan.

“Let me say this as clearly as I can: the United States is not at war with Islam. In fact, our partnership with the Muslim world is critical in rolling back a fringe ideology that people of all faiths reject,” Obama said. “But I also want to be clear that America’s relationship with the Muslim world cannot and will not be based on opposition to al Qaeda. Far from it. We seek broad engagement based upon mutual interests and mutual respect. We will listen carefully, bridge misunderstanding, and seek common ground.” Turkey is a major transit route for U.S. troops and equipment destined for Iraq as well as Afghanistan. As the United States reduces its troops in Iraq, Incirlik air force base is expected to play a key role and Obama discussed this with Turkish leaders.

TURKISH INFLUENCE

Obama’s visit is also a nod to Turkey’s regional reach, economic power, diplomatic contacts and status as a secular democracy seeking European Union membership that has accommodated political Islam.

“Given Turkish activity and credibility in the wider region stretching from Afghanistan to the Middle East, passing over energy transit routes, Obama wants to give new blood to a real strategic partnership with Turkey,” said Cengiz Candar, a leading Turkish commentator and Middle East expert. The U.S.-Turkish relationship suffered in 2003 when Ankara opposed the invasion of Iraq and refused to let U.S. troops deploy on its territory. Turkey has also criticized Washington for allowing Kurdish separatists to be based in northern Iraq. Obama offered to improve cooperation in the fight against PKK separatist rebels and backed Turkey’s troubled EU bid.

“Turkey’s greatness lies in your ability to be at the center of things. This is not where East and West divide, it is where they come together,” Obama said.

Your Stimulus Bonus

NEW YORK (CNNMoney.com) — You’re likely to see some more green in the next couple of weeks. Not only on the trees. Very possibly in your wallet, too.

President Obama has asked that all employers adjust their payroll systems by Wednesday so eligible workers can start receiving the new Making Work Pay tax credit through their paychecks. The credit, available for 2009 and 2010, was a part of the economic recovery package lawmakers passed in February.

Just how much extra cash you will see depends on your marital status, your salary and how many allowances — or exemptions — you normally take.

As a rough guide, singles eligible for the credit might get between $10 to $15 per paycheck if paid weekly; for those married filing jointly, they’re likely to see an extra $15 to $20.

Who is eligible?

The credit is available to those with earned income. It’s worth up to $400 a year for single filers and $800 for joint filers.

The full credit will be paid to people with modified adjusted gross incomes of $75,000 or less ($150,000 per couple). A partial credit would be paid to those making above those amounts but no more than $95,000 ($190,000 for couples).

What is modified adjusted gross income? It’s your adjusted gross income but with some exclusions added back in. In the case of this credit, the only exclusion that would need to be added back is any income earned in a foreign country, in Puerto Rico or in American Somoa.

“For most people, their modified adjusted gross income will be the same as their adjusted gross income, which is on the bottom of the front page of their return,” said enrolled agent David Mellem of Ashwaubenon Tax Professionals, who is certified to represent taxpayers before the IRS.

The credit is also refundable, which means that even very low-income families who don’t make enough to owe income tax would be able to claim it.

Who is not eligible?

Even if someone works, he won’t qualify for the Making Work Pay credit if he is claimed as a dependent on someone else’s tax return.

Also, adults who are eligible for Social Security, Railroad Retirement, veteran’s compensation or pension benefits will not receive the credit. But if they were eligible for those benefits sometime between November 2008 and January 2009, they will receive a one-time, $250 emergency payment no later than mid-June.

That emergency payment is not subject to income tax, Mellem said.

How does it work?

Using new withholding tables from the IRS, employers are supposed to pay out the Making Work Pay credit by reducing how much tax is withheld from eligible workers’ paychecks.

“Changing withholding tables is a routine task. It’s not difficult,” said Scott Mezistrano, senior manager of government relations at the American Payroll Association.

In fact, many employers likely have already done so, said Pete Isberg, the head of the National Payroll Reporting Consortium. That means their employees should already have started to see more cash in their paychecks.

For example, Ron Moser, a human resources director for a school district in western New York, said his district included the credit in paychecks starting in early March.

Lower-income workers may not make enough money to have taxes withheld once their exemptions are taken into account. So they won’t see any extra cash in their paychecks. But they may claim their full credit when they file their 2009 tax returns next year.

Is there anything I need to watch out for?

Possibly. Some people could end up getting a larger credit than they’re entitled to. That means they’d have to pay back the excess amount when they file their 2009 taxes — or, if they’re getting a refund, their refund would be reduced by the amount they were overpaid.

If that situation is unappealing, a tax filer could act now to reduce the number of withholding allowances he takes on his W4 at work. The fewer allowances he takes, the more tax that is withheld.

The IRS has a calculator online that you can use to figure out how many allowances you should take if you’re eligible to receive the credit and don’t want to be overpaid — or to put it another way, don’t want to have too little tax withheld.

Those most likely to be overpaid are:

Anyone who holds more than one job. You will get paid the Making Work Pay Credit twice, up to $400 ($800 for a joint filer) from your first employer and up to $400 ($800 for a joint filer) from your second employer.

Joint filers whose spouses work. Each spouse will end up being paid the credit for married couples by each of their employers.

There’s a twist, too. Because of the way the withholding tables were set up, each working spouse may be paid up to $600 this year — instead of up to the $800, Mezistrano said.

In other words, the husband would receive $600 at his job and the wife $600 at her job, for a total of $1,200. Since they’re only entitled to $800 total as a couple, that means they would have to pay $400 back to the IRS — or see their refund reduced by that amount.

Anyone who receives income from a rental property or investment, such as interest and dividends. Your employer only knows about the income you earn at the company. If you receive other income that increases your modified adjusted gross income — or even pushes you past the income limits for the credit — you may end up owing the IRS some or all of the credit you received in your paycheck.

Anyone who started receiving their credit at the end of Febuary or anytime in March. The withholding tables are structured so that payments starting in April will add up to $400 for single filers and $800 for joint filers by year end. If payments start sooner than that a tax filer may actually receive a bit more than he’s due by Dec. 31.

Conversely, if your employer doesn’t start your payments until the end of April or in May — there’s no penalty if an employer doesn’t meet the April 1 deadline — you may end up getting a little less of a credit than you’re entitled to, in which case you can claim the rest when you file your 2009 tax return.