Monthly Archives: October 2015

2015
10/25

Category:
Credit Ratings

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United Technologies Credit Ratings Downgraded

Moodys Investors Service downgraded United Technologies Corp.s senior unsecured debt rating from A2 to A3 Monday, saying analysts believe the company is taking on more risk.

In particular, Moodys believes there is likely to be a more aggressive financial risk tolerance than has been characteristic of UTC in the past. This developing shift is coincident with senior management changes over the past year, and comes at a time when the fundamental business operations lag prior expectations, said Russell Solomon, senior vice president and Moodys lead analyst for UTC.

2015
10/24

Category:
Pay Day Loans

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Michelle Singletary: A rare time when debt is worth it

Anyone who reads my columns knows that I absolutely despise debt.

Some people argue that there is good debt (a mortgage, student loans) and bad debt (credit-card debt, pay-day loans). I disagree.

2015
10/23

Category:
Revenue

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Treasurer Scott Morrison. Photo: Getty Images

  • Were now a nation of renters

Weeks after Treasurer Scott Morrison declared his budget had a spending problem, not a revenue problem, new finance department figures show revenue falling short.

The figures for the first two months of the financial year show revenue of only $61.113 billion in July and August, well short of the $63.336 billion expected when the budget was delivered in July.

Tax revenue is down $1.7 billion down on the budget forecast due to both slower than expected wage growth and weaker than expected dividend payments.

2015
10/23

Category:
Credit Ratings

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Morningstar Credit Ratings, LLC Affirms ‘MOR CS1’ Commercial Mortgage Primary …

Morningstar Credit Ratings, LLC Affirms ‘MOR CS1’ Commercial Mortgage Primary Servicer Ranking and ‘MOR CS2’ Commercial Mortgage Master Servicer Ranking for Prudential Asset Resources, Inc.

September 25, 2015: 12:43 PM ET

NEW YORK, Sept. 25, 2015 /PRNewswire/ — Morningstar Credit Ratings, LLC today affirmed its ‘MOR CS1’ commercial mortgage primary servicer ranking and its ‘MOR CS2’ commercial mortgage master servicer ranking for Prudential Asset Resources, Inc. (PAR). Morningstar’s forecast for both rankings is Stable.

Morningstar affirmed its rankings based on PAR’s experienced staff, diligent portfolio management, effective technology, comprehensive training programs to promote career development, sound internal audit and compliance practices, and controlled, integrated use of offshore personnel. PAR had higher employee turnover in 2014 and in June of this year hired a seasoned industry executive to become its new president. However, Morningstar believes the servicer continues to demonstrate operational stability and strong managerial depth. The affirmed primary servicer ranking also acknowledges PAR’s thorough and successful efforts this year to strengthen its renewal-tracking procedures for Uniform Commercial Code filings. The affirmed master servicer ranking reflects PAR’s expertise and sound practices for commercial mortgage-backed securities (CMBS) trustee reporting, which has been nearly error-free in the past year. Although PAR no longer manages any CMBS subservicers, it maintains sound oversight procedures if needed.

As of June 30, 2015, PAR’s primary- and master-servicing portfolio consisted of 5,146 loans with an unpaid principal balance (UPB) of approximately $83.81 billion. It served in a combined role as primary and master servicer on 24 CMBS and one collateralized debt obligation transaction collectively containing 431 loans with a total UPB of $4.93 billion. PAR also served as a primary servicer for 33 other CMBS transactions and 53 Freddie Mac securitizations. Collectively, these 86 primary-serviced transactions consisted of 372 loans with a total UPB of $5.74 billion

To access Morningstar’s operational risk assessment methodology and all published reports, please visit https://ratingagency.morningstar.com. 

About Morningstar Credit Ratings, LLC and Morningstar, Inc.
Morningstar Credit Ratings, LLC is a Nationally Recognized Statistical Rating Organization (NRSRO) offering a wide array of services including new-issue ratings and analysis, operational risk assessments, surveillance services, data, and technology solutions.

Morningstar Credit Ratings’ rankings, forecasts, and assessments contained in this press release are evaluations and opinions of non-credit-related risks and, therefore, are not credit ratings within the meaning of Section 3 of the Securities Exchange Act of 1934 (“Exchange Act”) or credit ratings subject to the Exchange Act requirements and regulations promulgated thereunder with respect to credit ratings issued by NRSROs.

Morningstar Credit Ratings, LLC is a subsidiary of Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research in North America, Europe, Australia, and Asia.

Morningstar, Inc. offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement and management as of June 30, 2015. The company has operations in 27 countries.

Morningstar, Inc. is not an NRSRO and does not issue NRSRO credit ratings.

©2015 Morningstar, Inc. All Rights Reserved.

MORN-R

Media Contact: 
Michelle Weiss, +1 267-960-6014 or michelle.weiss@morningstar.com

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/morningstar-credit-ratings-llc-affirms-mor-cs1-commercial-mortgage-primary-servicer-ranking-and-mor-cs2-commercial-mortgage-master-servicer-ranking-for-prudential-asset-resources-inc-300149245.html

SOURCE Morningstar, Inc.

 

2015
10/22

Category:
Automobile Credit

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Ben Bernanke: ‘A terrible, almost surreal moment’

From 2006 to 2014, Ben Bernanke served as the chairman of the US Federal Reserve, a period marked by the worst financial crisis since the Great Depression. His new book, The Courage to Act: A Memoir of a Crisis and its Aftermath, tells the story of the efforts by officials to halt the panic in 2008 and rescue the US economy. 

Q: Looking back, how close did the US come to experiencing another Great Depression?

A: I think the risk was quite high, based on historical experience and on the reaction of the economy to the intensification of the panic in the fall of 2008. We saw a tremendous contraction in jobs and GDP growth in the fourth quarter of 2008 and the first quarter of 2009, before the crisis was stabilized.

Q: At the time, did you think another Depression was looming?

A: I certainly thought it was a realistic possibility, and I don’t know how much of a probability of Depression you want before you work really hard to avoid it. I did think the collapse of the financial system would have serious effects on the economy, and what we saw in the fall of ’08 and the spring of ’09 confirmed how powerful those effects were.

Q: What was the darkest moment for you?

A: The worst moment was probably the famous Lehman weekend [Sept. 13 to 15, 2008], when I learned that, despite all our best efforts, we had no way to save Lehman. The concern was not about the company itself, but rather that its failure would greatly worsen the panic that was under way.

Q: In your book, you describe it as a “terrible, almost surreal moment,” and that America was staring “into the abyss.” What made that worse than other moments in the crisis?

A: It was the only case where we weren’t able to come up with some solution. Bear Stearns was acquired by JP Morgan with Fed help [on March 16, 2008]. We averted the kind of panic at that stage that we would get later in September ’08. And then, subsequently, we had very tough moments in September with AIG. But Lehman was the only big financial firm to collapse.

Q: That was 2008. The US has had interest rates at near zero for seven years. Monetary stimulus has added trillions to the Fed’s balance sheet. So why is the economy still so weak?

A: Well, the Fed can do two things: It can help the economy recover from recession, and it can keep inflation low and stable. Inflation is certainly low and stable–in fact, below the two per cent target–and, measured in unemployment and labour-market slack, the economy has made a lot of progress. The pace of growth is disappointingly slow, mostly because productivity growth has been very slow, which is not really something amenable to monetary policy. It comes from changes in technology, changes in worker skills and a variety of other things, but not monetary policy, in particular. You say the economy is so weak. It’s certainly not where we would like it to be, but if you compare it to Europe or Japan, other industrial economies, they have done much worse.

Q: Looking back, what would you have done differently in your response to the crisis?

A: If anything, it could have been even a bit more aggressive. I think the one point you could also make is that the Federal Reserve has been bearing most of the burden, and there are limits to what monetary policy can do. We would have been better off with a more balanced policy approach involving both monetary and fiscal policy.

Q: You wrote that you came to feel that the $787-billion stimulus plan [in 2008] was too small.

A: It was not only the initial stimulus, which was actually helpful, but, after 2010, fiscal policy got fairly contractionary, with almost no job growth in the public sector. Also, the fiscal policy-makers have actually been doing damage to the recovery, with things like coming close to not raising the debt ceiling.

Q: How much of a role should fiscal policy play at a time like this, when we’ve seen monetary policy so ineffective?

A: It depends on the fiscal condition of the country.  If you’re Greece, there’s not a lot of scope for using fiscal policy to help you grow, because you don’t have the fiscal space. But the United States could have been less restrictive on fiscal policy from 2010 to 2014. So if a country has scope to use fiscal policy, I think there’s an argument for having a better balance between monetary and fiscal policy.

Q: What about Canada?

A: I’m not just being coy; I don’t think I know enough about it to say anything smart.

Q: Let’s go back to before the crisis. You’ve taken heat for dismissing the housing bubble. How much of that was you not seeing the bubble, versus you not wanting to panic people by talking about it as such?

A: We certainly knew house prices were very high, and understood there was a good chance they would have to come back down. We also understood that subprime mortgages–I’m talking now about after I became chairman in 2006–were failing at increasing numbers. But what we missed was really the possibility that the losses in subprime mortgages would create a financial panic that would almost bring down the financial system. If it hadn’t been for the panic, I don’t think the implications for the broader economy would have been nearly so large.

Q: In the book, you argue that the panic itself caused more damage to the economy than the actual trigger, the housing bubble. But how can you separate the two, because the panic was a response to nobody knowing the value of those toxic assets created in the bubble?

A: That’s right, but financial panics typically start with some kind of trigger, which creates uncertainty. If the financial system is vulnerable or weak enough, it can spread into a forest fire of a panic. The fear of subprime losses led investors to stay away from any kind of credit product, even things like credit cards and automobile credit that actually did fine. So it was the panic throughout the system that was the really costly part of the collapse. Of course, the housing collapse was important, too, but the collapse in jobs didn’t happen until after Lehman, and then it was intense. Meanwhile, house prices actually weren’t falling very quickly, but after Lehman, and after the crisis intensified, that’s when house prices really began to fall sharply. So it was the intensification of the panic in September of ’08 that really led to the very sharp decline in the US economy.

Q: What damage did the bank bailouts do to Americans’ trust in the financial system?

A: There was certainly some negative political reaction, which I fully understand. People were very unhappy with the fact that the economy was doing so poorly, and they were having difficulty finding work or paying the bills. They were very resentful that it looked like the Wall Street firms were getting help, but they weren’t. So I’m totally sympathetic to that, and I understand the anger. I’m hopeful that as the economy gets better, and the rules that were put in place make the financial system safer, people will appreciate that what was done was necessary for the stability of the overall economy.

Q: In a recent interview, you said somebody should have gone to jail for causing the crisis. Why haven’t they?

A: What the Department of Justice [DOJ] did was essentially not prosecute or pursue individuals–not necessarily executives, but traders or anybody. Instead, they prosecuted or extracted fines from large financial institutions. If laws were broken, or if bad practices were promulgated, they were done by some individual. So the DOJ should have pursued the individuals.

Q: Yet the DOJ argued it would create financial uncertainty and hurt the economy.

A: That’s quite the contrary. Exacting big fines on big banks cuts into their capital and makes them a little bit less stable, whereas going after individuals shouldn’t have any adverse effect on the institutions themselves.

Q: The Bank of Canada has cut rates twice this year, as have other countries, making it harder for US exporters to compete. What challenge is this posing for the Fed?

A: Of course, weaker currencies abroad mean a strong dollar, and a stronger dollar, together with a weak global environment, is a drag on the US economy. So it’s important, as it affects overall levels of production and employment in the US It’s not the only factor. There are many domestic industries doing well in the United States, notwithstanding a strong dollar. But the Fed will have to pay attention to what’s happening outside the country and with the dollar, because exports are one of the sources of demand for US goods and services. So, to the extent that that’s slowing the US economy, that’s something that the Fed has to take into account.

Q: Is there a risk of currency wars?

A: No, I don’t think so. To the extent that a country changes its monetary policy and weakens its currency, that is going to take exports away from other countries, it’s true, but the easier monetary policy strengthens the domestic economy of that country. That’s actually an offset. It provides more demand for foreign goods and services. So the view held by the G7 and other international groups is that changes in currencies created by monetary policy are not a form of currency war.

Q: But isn’t there a risk of a race to the bottom as central banks cut to counter each other?

A: Again, they’re not working against each other. If two countries both ease monetary policy, their relative currencies shouldn’t change very much, because they’re both eased. But you get more demand in both, so you should get a win-win situation there.

Q: The US is already at zero, though; it can’t cut anymore.

A: It’s only a problem to the extent that it prevents the overall US economy from recovering. If the Fed determined, hypothetically, that because of the strong dollar, the US economy couldn’t recover, it could postpone any rate increases. That would amount to a form of easing.

Q: As a student of history, you know how the understanding of a crisis can change over ensuing decades. What do you hope your legacy will be when people look back at your time at the Fed?

A: I think we used the lessons of classic financial panics to understand and respond to this panic, and we demonstrated the importance of both a strong financial system and an effective response to a financial crisis. We did succeed in stopping the crisis and in helping the economy return to where we’re currently, about five per cent of employment, so that’s what we accomplished. We also increased the transparency of the Fed, for example, introducing things like press conferences and other kinds of public communication. And of course we demonstrated that even when interest rates get close to zero, there’s still more the Fed can do–we used quantitative easing and forward guidance to provide more stimulus and helped the economy recover.

2015
10/21

Category:
Revenue

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Nike sets aggressive revenue target for $50 billion by 2020

BEAVERTON, Ore. — Nike (NKE) is already the king of fitness apparel, and the company doesnt plan to relinquish its throne anytime soon.

The worlds largest sports apparel brand set an aggressive new target Wednesday at its investor conference to hit $50 billion in revenue by 2020. Its a goal CEO Mark Parker called ambitious. In its most recent fiscal year ended May 31, Nike had $30.6 billion in revenue, a 10% increase over the previous year.

The energy surrounding Nike and all our brands is really at an all-time high, Parker said at the companys Beaverton headquarters, to a group of more than 100 analysts gathered to hear about the companys strategic plans for the next five years.

Nike stock edged up 0.02% to close at $125.84.

The company plans to hit its goal by focusing aggressively on product innovation and technology, developing deeper relationships with consumers through experiences and investing heavily in its womens business, a major growth category. It also expects a massive jump in e-commerce sales, from roughly $1 billion now to $7 billion by 2020, with plans to boost shopping capabilities on its apps and Nike.com.

We will be at the consumers fingertips every day, said Trevor Edwards, Nike brand president.

Nike is building a 125,000 square-foot facility on its campus just outside Portland, Ore., focused on advanced manufacturing and design technologies, including 3-D printing capabilities, which its already been using to produce some shoes. Nike has always been at the forefront of innovative design — Parker said the company has the third-largest portfolio of design patents in the US

The company also sees womens fitness as a major opportunity, and expects revenue in that category to nearly double in the next five years, from $5.7 billion to more than $11 billion. It faces growing competition from companies including Lululemon and Athleta, which have become destination brands in the womens athleisure market — the trend toward wearing athletic apparel outside of athletic endeavors.

Women, in particular, have fueled a new lifestyle of sport, driving growth of athletic apparel and footwear, Parker said.

Nike has started reconfiguring stores to focus more on womens apparel and is opening womens-only stores in select cities. The stores have tailored experiences for female athletes, such as sports bra fittings. It also plans to broaden the appeal of its Jordan brand for female consumers.

Offering athletic experiences and more tailored product recommendations are also part of the womens strategy, including the expansion of its fitness community through the Nike+ Training Club, a personal training app and group fitness movement, and using data analytics based on the Nike+ running app to reach customers on a more personal level, said Jayme Martin, vice president of global categories.

We care about athletes making us an authentic part of of their lives, he said.

2015
10/20

Category:
Pay Day Loans

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Color of Money: Value of being debt-free is for the children

Anyone who reads my columns knows that I absolutely despise debt.

Some people argue that there is good debt (a mortgage and student loans) and bad debt (credit-card debt and pay-day loans). I disagree.

Debt is debt. Its sometimes a necessary financial tool, but only when used sparingly and paid off as soon as possible.

But is there ever a time when indebtedness is a fair trade-off for something you value?

Thats the question I was asked during a recent online discussion. My answer might surprise you.

Some background:

My wife and I have always been great savers, a reader wrote. We are debt-free, even after finishing putting our two children through doctorate degrees two years ago. We hate debt, but we love our children. The two girls and their families have moved seven hours away, and we would like to be closer to them.

The couple also is concerned that, as they get older and possibly need some caregiving help, living so far away will be a burden to their children.

So, they wanted to know whether they should move and take on a mortgage or stay where they are and remain debt-free.

To move, the couple said, they estimate purchasing a home for about $300,000. They are in their mid-60s and retired, with a combined monthly retirement income of about $7,000 before taxes. They are able to make a $200,000 down payment.

We always bought the smallest house on the block that met our needs, not our desires, the reader added.

Before going any further, Donna Butts, executive director of Generations United, recommends that the couple talk to their daughters about their expectations.

They dont want to move closer thinking they will see the grandchildren or help with them more frequently if that isnt also what the parents are thinking, she said.

If everyone were thrilled about the possible relocation, the next issue would be: Can they afford the mortgage?

Using a mortgage calculator at realtor.com, I found that the principal and interest payment on a $100,000 loan at 2.99 percent would be about $961 if they opted for a 10-year fixed loan.

Current interest rate trends for various mortgage types are automatically plugged into the calculator, which also lets you input your home location and then estimates your property tax and insurance payments.

Using a Washington, DC ZIP code, the couples total cost would be $1,294, including principal, interest, taxes and insurance.

The couple didnt provide any additional financial information, so I dont know what assets or other major expenses they may have. I dont know if the $200,000 would come from the sale of a current home or if they planned to pull the money out of their retirement savings. However, based on what I do know, it appears they could handle a mortgage.

Then the issue turns on how much they value being debt-free. This is when personal finance becomes very personal.

We are torn between our love for no debt and love for our children, the reader said.

I would move.

As I told them, I would do whatever I could to avoid getting a mortgage, including searching again for a house or condo I could purchase outright.

But if they dont want to rent, cant or dont want to move in with family, or they cant find a cheaper home to meet even their modest needs, take on the mortgage.

As much as I hate debt and dream of one day being mortgage-free, I dont want to hold on to money at the risk of losing the time living closer to my adult children and grandchildren.

Generally its a great arrangement, because all generations can help with caregiving across the lifespan, Butts said. But even more, it means sharing family stories, history and experiences that help children and youth connect with their roots. It supports what has been called the grandparent advantage, because younger generations benefit from the recycled knowledge and experience of elders, and elders are fulfilled helping launch the next generation.

To further make her point, Butts referred to a Maya Angelou quote: Today people are so disconnected that they feel they are blades of grass, but when they know who their grandparents and great-grandparents were, they become trees, they have roots, they can no longer be mowed down.

By moving, the couple can leave a legacy that distance can prevent.

If they stay put, they may have more money to pass on to their children and their childrens children.

But if they move, they also have something else they can pass on: their presence. And as we know, money cant buy time.

Contact Michelle Singletary at michelle.singletary@washpost.com or c/o The Washington Post, 1150 15th St. NW, Washington, DC 20071.

2015
10/19

Category:
Credit Ratings

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Moody’s says VeriFone’s share repurchase plan is credit negative, but ratings …

New York, September 30, 2015 — Moodys Investors Service said that VeriFone, Inc.s
(VeriFone) parent company, VeriFone Systems,
Inc.s $200 million share repurchase plan is credit
negative but VeriFones Ba3 Corporate Family Rating, Ba3 senior
secured debt rating and the stable rating outlook are not affected.

For more information please see Moodys Issuer Comment on www.moodys.com.

This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.

Raj Joshi
Vice President – Senior Analyst
Corporate Finance Group
Moodys Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moodys Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moodys says VeriFones share repurchase plan is credit negative, but ratings not affected

2015
10/19

Category:
Revenue

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Citigroup profit soars as lower costs trump revenue fall

n>Citigroup Inc (C.N) reported a 51 percent jump in quarterly profit as lower costs more than made up for a fall in revenue amid increased market volatility and uncertainty about the timing of a US interest rate hike.

Legal and related costs of the No.3 US bank by assets nosedived from a year earlier, with the lender putting most of the problems stemming from the financial crisis behind it.

Operating expenses fell 18 percent as Chief Executive Michael Corbat works through his plan to exit businesses where profits and prospects are not worthwhile.

US banks including Citi, JPMorgan Chase Co (JPM.N) and Bank of America Corp (BAC.N) are cutting costs to boost earnings as overnight fund rates stay near zero and fixed-income trading, long a source of revenue growth, shows no sign of picking up.

Citi shares rose as much as 4.3 percent on Thursday.

Citi Holdings, the bad bank that holds assets marked for sale, saw the biggest plunge in revenue, a steep 32 percent, as assets in the unit shrank 20 percent.

The lender expects to close an additional $31 billion in Citi Holdings asset sales in the fourth quarter, Corbat said on a conference call.

Revenue decline in Citicorp, Citis largest unit that holds core businesses, was the smallest at 2 percent.

It was a relatively straightforward quarter – a positive in our view considering both the complexity of Citi and the volatility experienced globally in the third quarter, Deutsche Bank analyst Matt OConnor wrote in a note.

Citis institutional clients group was the only unit to post a rise in revenue, helped by higher private banking and equity market income.

HEADWINDS

Citi is the most international of US banks, with half of its revenue coming from markets outside North America.

The lenders revenue from Asia fell amid slowing economic growth in China.

Revenue from fixed income markets declined about 16 percent to $2.58 billion, reflecting a trend seen in the results of other big US banks.

Goldman Sachs Group Inc (GS.N), which also reported results on Thursday, said bond trading revenue fell 33 percent.

JPMorgan and BofA also reported a fall in third-quarter revenue this week, hurt by muted trading.

Citis adjusted return-on-assets rose to 0.91 percent from 0.64 percent, meeting Corbats target of at least 0.9 percent for the year.

Total revenue fell about 5 percent to $18.69 billion. Net income rose to $4.29 billion from $2.84 billion a year earlier.

Adjusting for some accounting items, profit rose nearly 38 percent to $1.31 per share, beating the average analyst estimate of $1.28 per share, according to Thomson Reuters I/B/E/S.

The results reflect Citis success in winning approval from the Federal Reserve to buy back stock. The number of shares outstanding fell 2 percent from a year earlier, boosting earnings per share.

Citi will favor stock buybacks over dividends as long as its shares trade below their tangible book value, Corbat said.

Citis shares were at $52.84 in afternoon trading, well below the stocks tangible book value, which rose to $60.07 in the third quarter from $57.41 a year earlier.

(Reporting by Sweta Singh in Bengaluru and David Henry in New York, additional reporting by Rachel Chitra; Editing by Kirti Pandey)

2015
10/18

Category:
Revenue

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AMD Reports a Loss on 26% Revenue Decline

Advanced Micro Devices Inc.’s third quarter results suffered from weak sales of chips for personal computers, but it disclosed a deal with a Chinese company that will provide a $371 million cash infusion and reduce future costs.

The chip maker on Thursday reported a $197 million loss in its third quarter on revenue that fell 26% from the year-earlier period. AMD recorded a $65 million write-down of some older chips in addition to a…