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Yellen opening remarks to Senate committee identical to February 11 House testimony

Thu Feb 27, 2014 10:02am EST

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Poland seen raising rates toward year-end, no guidance change seen in March: Reuters poll

WARSAW (Reuters) – Poland’s central bank is likely to start raising interest rates in the last quarter of 2014, a Reuters poll showed on Thursday, reflecting a strengthening recovery in central and eastern Europe’s largest economy.

Most analysts polled said they did not expect the central bank to further extend its guidance for rates to stay at the record low they reached last July.

At its March meeting, the bank will release new economic growth and inflation forecasts that could support expectations of rate rises towards the end of this year.

The median forecast of 19 analysts polled on February 25-26 showed the key rate at its all-time low of 2.50 percent until a 25-basis-point increase in the last three months of 2014, unchanged from last month.

The poll also showed the bank was likely to raise rates further to 3.50 percent by end-September 2015.

All analysts polled expected rates to remain flat at the meeting ending next Wednesday, in line with the bank’s guidance. The bank reiterated in February it would stick to its pledge to hold rates steady until at least June this year.

Twelve analysts of 18 who submitted answers said they did not expect the bank to extend its guidance in March.

“It is clear that opinions within the Council have already started to differ. Thus, it is unlikely that the Council would agree on a future rate path,” said Grzegorz Ogonek, economist at ING Bank Slaski.

In February, rate-setter Andrzej Rzonca told Reuters there was no reason to extend the guidance beyond June. Earlier, policymaker Elzbieta Chojna-Duch warned against raising rates too quickly.

“More flexibility in the form of not extending the forward guidance will not hurt the recovery,” ING’s Ogonek added.

Inflation in Poland stands at an annual 0.7 percent, deep below the 2.5 percent bank’s target, but it is expected to accelerate in the second half of the year.

Poland’s expected rate path contrasts with most of Europe. The European Central Bank cut rates in November last year and some analysts say it could cut more.

Czech rates are near zero, and its central bank is intervening in currency markets to ward off deflation.

Hungary’s central bank has been cutting its main rate month-by-month since late 2012, most recently to a record low of 2.7 percent in February.

(Reporting by Marcin Goettig; Editing by Ruth Pitchford)

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Wage rises may break Bank of England’s united front on forward guidance

LONDON (Reuters) – Wage growth is likely to be the fault line that splits Bank of England policymakers who, for now, are presenting an unusually united front.

In a string of speeches and interviews since the Bank announced its new guidance policy on February 12, Monetary Policy Committee members have stressed that the BoE is not going to start weaning Britain’s economy off record-low interest rates soon.

“There’s a remarkable degree of the MPC being on message,” said David Tinsley, UK economist at BNP Paribas.

Data on Wednesday showed business investment and exports finally starting to pick up, something the BoE is counting on to sustain 2013’s strong recovery. And inflation is below the BoE’s 2 percent target for the first time in over four years.

But beneath the apparent unity among policymakers, there are big uncertainties about how much scope Britain has to catch up on the growth it lost after the financial without triggering inflation.

Economists expect differences among the MPC to emerge as wages start to pick up and test how much slack there really is in Britain’s economy, and whether productivity can improve fast enough to avoid a surge in prices.

MPC member Ian McCafferty said wage deals early in 2014 would be “quite critical” for the inflation outlook.

However, McCafferty added there would still be plenty of debate about the extent to which higher wages would push up inflation, and whether the large number of people still out of work or wanting to work extra hours would keep a lid on wages.

“There may be some nuanced differences as you would expect terms of how that degree of slack will translate into wage pressures, and that’s what we need to watch,” he said in an interview with Reuters this week.

Unity on the MPC is not always the case. A year ago, the then governor, Mervyn King, was left in a minority of three calling unsuccessfully for a restart of the central bank’s 375 billion pound ($624 billion) asset purchase program.

But so far no policymaker has significantly challenged the implication in the BoE’s latest forecasts that markets are right to price in a rate hike in just over a year’s time.

The pattern would be a familiar one for Governor Mark Carney. In his previous job as head of Canada’s central bank, deputy governors were expected to agree with their boss in public, and there were no external officials to give an independent view.


Nonetheless, two BoE policymakers have offered signals that the balance of risks around the timing of a first rate rise is different to what the BoE forecasts imply.

Martin Weale – who voted against guidance in August – chose last week to talk about the possibility of the first rise in interest rates coming sooner than the spring of next year if average earnings rise more quickly than expected.

MPC member David Miles – the most persistent advocate for more stimulus in 2012 and 2013 – said policymaker’ estimates of slack in the economy were more widely spread than the 1.0-1.5 percent range published by the BoE, and that he thought there could be more.

Other officials have been more coy, leading to some different interpretations among analysts as to where their convictions lie.

BNP Paribas’s Tinsley interpreted a speech by MPC member Ben Broadbent as meaning there was significant scope for a catch-up in British productivity, while Berenberg economist Rob Wood saw it as pointing to an earlier rate rise.

British wages have been falling in real terms since the financial crisis, mitigating the impact on inflation from a slump in productivity.

But the central bank expects this trend to go into reverse in 2014. And on Wednesday the government said it was considering a 3 percent rise in the minimum wage, the first real increase since 2008 and one which would set a benchmark for better-paid workers too.

Berenberg’s Wood – a former BoE economist himself – said rising wages could prompt some MPC members to vote for a rate rise much sooner than their current comments suggest.

“The dovish camp is fading. You don’t have anyone really making a strong case that they can wait very much longer than Q2 2015. You have either people sticking very close to the party line or saying things that are slightly more hawkish.”

As unemployment continues to fall and wage growth pick up from its current 1.1 percent annual rate, one or two officials might start to vote for a rate rise as soon as August, Wood said, with a majority potentially in favor later this year.

“I think there is a real chance they do it in the fourth quarter of this year, in November or December.”

(Writing by David Milliken, editing by William Schomberg/Jeremy Gaunt)

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Fashion house Versace sells stake to Blackstone to fund growth

MILAN (Reuters) – Italian fashion house Versace is selling a 20 percent stake to U.S. private equity firm Blackstone (BX.N) for 210 million euros ($287 million), aiming to fund new shops and build on a recent recovery in sales before an eventual stock market listing.

The family-controlled brand, which chose pop singer Lady Gaga to promote it last year, struggled for years following the murder of founder Gianni Versace in 1997.

While it returned to profit in 2011, it has lacked the cash to expand rapidly in fast-growing markets abroad.

“This is a very large and very well-known brand so it could be revived … but a lot of work has to be done on the creative side,” Exane BNP Paribas analyst Luca Solca said in the wake of the deal on Thursday.

“The brand has to be updated and they need new ideas. With a minority stake it might not be possible to make these changes,” he added, referring to the potential influence of Blackstone.

Versace, which had been gearing up for a listing before Gianni died, first flagged last April that it was considering opening up to outside investors.

The family does not want to relinquish control, a characteristic which has kept other Italian fashion brands like Giorgio Armani and Missoni in the hands of their founders, but which some analysts say has hampered their expansion.

“The vision is to maintain independence,” Versace Chief Executive Gian Giacomo Ferraris told Reuters after announcing the deal.

Gianni’s sister Donatella is creative director and older brother Santo is company president, while Donatella’s daughter Allegra owns 50 percent of the company and sits on the board.

Ferraris said a planned initial public offering in the next three to five years was still on the agenda, and Blackstone’s investment would help the brand get there.

“In this intermediate period of time you need a financial investor, not a strategic investor,” said Ferraris, signaling the company had not wanted a tie-up with another luxury firm or a more activist private equity investor which might have interfered with its management.

Mergers and acquisitions have been picking up in the luxury sector, as a growing number of cash rich buyers from Asia and the Middle East jostle with global luxury brands and private equity firms for deals in a growing industry.


Thursday’s deal values Versace, whose catwalk show in Milan earlier this month showed fishtail gowns and 1960s-style shift dresses, at around 14.5 times expected 2013 core earnings.

This multiple is higher than the luxury sector average of around 11, but well below the 31.5 times core earnings that Qatar’s royal family paid to acquire Valentino in 2012.

Versace has 137 shops, and plans to reach a total of 200 directly-operated shops within three years, Ferraris said.

By comparison, fellow Italian designer Roberto Cavalli, whose vivid style is sometimes compared to Versace’s, has 179 mono-brand stores, despite making less than half the revenue Versace expects to post for 2013.

“If you compare with competitors we deserve to be bigger,” Ferraris said. “That is why we need a little financial help.”

Ferraris said the company wanted to open in emerging markets, where demand for luxury goods remains strong, including Turkey, Korea and Japan. It shut all its shops in Japan in 2009 to cut costs as losses deepened.

Versace, which was founded in 1978, said it expects to post 2013 core earnings up more than 50 percent to at least 69 million euros.

Goldman Sachs (GS.N) and Banca IMI (ISP.MI) advised Versace on the transaction. Blackstone was advised by Lazard.

(Additional reporting by Stephen Jewkes; Editing by Jason Neely and Mark Potter)

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Ukraine tensions hit shares, euro drops to two-week low

NEW YORK (Reuters) – Stocks on world markets edged lower on Thursday, as tension in Ukraine and Russia curbed risk appetite, though Wall Street managed to hold near unchanged as investors tuned in to Fed chair Janet Yellen’s testimony in Washington.

Saber-rattling in the Ukraine grew, as armed men seized the parliament in Ukraine’s Crimea region and raised the Russian flag, alarming Kiev’s new rulers, who urged Moscow not to abuse its navy base rights on the peninsula by moving troops around.

The Russian ruble touched a five-year low against the dollar, while Ukraine’s hryvnia fell to a record low after its central bank abandoned its managed exchange rate policy.

The geopolitical uncertainty caused investors to seek the safety of U.S. Treasuries, driving yields to two-week lows. The 10-year note was yielding 2.649 percent. The Japanese yen and Swiss franc, both traditional safe-haven plays in foreign exchange, gained.

“There are definitely fears about geopolitics; the general mood towards emerging markets is not great. The concern is this could develop into a proper civil war in Ukraine that splits the country,” Manik Narain, strategist at UBS in London, said.

Wall Street was little changed, as comments from Yellen failed to provide much clarity on the impact of the weather on recent economic weakness. Data on Thursday showed orders for long-lasting U.S. manufactured goods excluding transportation unexpectedly rose last month, as did a gauge of business spending plans.

“Durables came in better than feared, but it is difficult to tell what the weather impact was and what the impact of an actual slowdown might be,” said Joseph Tanious, global market strategist at J.P. Morgan Asset Management in New York.

Yellen, during her testimony before the Senate, said recent data pointed to a softening in spending in the U.S. economy that might be explained partly by the bad weather.

If the view holds that harsh winter weather is to blame, investors are likely to expect the Fed to keep trimming its bond-buying program by $10 billion at each policy meeting, leaving it on track to end the bond purchases completely by the end of the year.

The Dow Jones industrial average .DJI rose 0.22 point, or 0 percent, to 16,198.63, the SP 500 .SPX gained 0.49 point, or 0.03 percent, to 1,845.65 and the Nasdaq Composite .IXIC added 4.856 points, or 0.11 percent, to 4,296.92.

Shares of both J.C. Penney Co Inc (JCP.N) and Best Buy Co Inc (BBY.N) jumped after the companies posted strong results. Penney forecast more improvement in its comparable sales and gross profit margin this fiscal year, and Best Buy posted adjusted earnings that topped forecasts.

Penney surged 21 percent to $7.23 while Best Buy advanced 5.4 percent to $27.22. The SP retail index .SPXRT dipped 0.1 percent following a five-day rally

The MSCI world equity index .MIWD00000PUS, which tracks shares in 45 nations, slipped 0.20 point, or 0.05 percent, to 407.16.

The sharpening rhetoric in Ukraine held down Europe’s main markets .FTEU3, which lost 0.4 percent. In Germany the DAX .GDAXI fell 1 percent for the biggest drop since February 3, while the euro dropped to a two-week low of $1.3641.

There was plenty of additional pressure for the euro. Spain’s fourth-quarter gross domestic product figures were revised downward, and ECB data showed little improvement in the amount of credit reaching euro-zone firms.

German inflation figures suggested there would be scant pick-up in euro-zone inflation, which is to be published on Friday.

The ECB meets next week and is under pressure to cut interest rates again and dip back into its unconventional policy cupboard to ensure the euro zone doesn’t become mired in deflation.

In bond markets, the possibility that more moves are coming from the ECB and a strong debt auction in Italy helped lower-rated Italian and Spanish debt keep pace with safe-haven German Bunds.GVD/EUR

Among commodities, copper dropped to a three-month low below $7,000 a ton, extending its losses over the past week on recent concerns about slower growth in China.

Gold prices edged up due to a steady dollar, but remained well below the previous day’s four-month high as buyers of coins, bars and jewelry in Asian markets held off in expectation of a further price drop. Spot gold advanced 0.2 percent $1,333.50 an ounce, off Wednesday’s high of $1,345.35.

After recent falls, the yuan saw a second day of relative calm, standing at 6.1279 per dollar, just off Wednesday’s low of 6.1351. A bounce in Chinese shares helped Asian shares .MIAPJ0000PUS gained 0.3 percent.

Dealers suspect the People’s Bank of China has engineered the recent decline in the country’s currency to inject more two-way volatility into the market and wrong-foot speculators who had bet on its continued rise.

(Additional reporting by Ryan Vlastelica in New York and Sujata Rao in London; Editing by Leslie Adler)

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Lego expects to keep on outperforming toy market

COPENHAGEN (Reuters) – Denmark’s Lego increased sales and operating profit by 10 percent in a sluggish global toy market in 2013 and said it expected to continue to outperform the market by launching new products and expand in emerging markets aided by a successful movie.

Strong performance by its Chima, Friends and City brands helped Lego, mostly known for its colorful bricks, to increase sales to 25.38 billion Danish crowns ($4.65 billion) in 2013.

This puts the unlisted Danish toymaker ahead of United States’ Hasbro (HAS.O) which sold for $4.08 billion in 2013, but still far behind the $7.1 billion revenue of Mattel (MAT.O), the U.S. maker of Barbie dolls and Fisher-Price.

Lego said that in the coming years it expected to grow “moderately ahead” of the global toy market, which is expected to grow by a low single-digit percentage annually.

“We are getting very strong feedback from the market and from our customers and from the children,” chief executive Jorgen Vig Knudstorp said at a presentation.

He said that in order to fulfill the ambition “to take the bricks all over the world”, Lego has established major sites in Singapore, Shanghai and London, besides its existing hubs in Connecticut, U.S. and in Billund in western Denmark.

Knudstorp said Lego aims to increase its sales outside the developed countries, and that the global success of its “The Lego Movie” could help to strengthen its brand there.

“We are, of course, noticing a very considerable amount of excitement surrounding ‘The Lego Movie’, even in places where Lego is not so well known,” Knudstorp said.

The animated film that depicts a world based on the colorful toy blocks has led the United States box office charts for three consecutive weekends.

($1 = 5.4600 Danish crowns)

(Reporting by Teis Jensen; Editing by Stephen Powell)

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Durable goods orders ex-transportation rise in January

WASHINGTON (Reuters) – Orders for long-lasting manufactured goods excluding transportation unexpectedly rose last month as did a gauge of business spending plans, but that will probably not change views that factory activity is slowing.

The Commerce Department said on Thursday durable goods orders excluding transportation rose 1.1 percent, the largest increase since May, after falling 1.9 percent in December.

Economists polled by Reuters had expected this category to fall 0.3 percent after a previously reported 1.3 percent decline in December.

The increase last month reflected a surge in orders for computers and electronic products, fabricated metal products and defense capital goods.

Outside these three components, details of the report were weak, with declines in orders for machinery, primary metals, electrical equipment, appliances and components, and transportation equipment.

Data such as industrial production and regional factory surveys have suggested that manufacturing hit a soft patch in recent months.

Part of the slowdown reflects unusually cold weather that has disrupted activity. Manufacturing is also cooling as businesses work through a massive stock of unsold goods that was accumulated in the second half of 2013.

As result, they are placing fewer orders with manufacturers, holding back factory production.

Overall durable goods orders fell 1.0 percent last month after plunging 5.3 percent in December.

Economists polled by Reuters had expected orders of items from toasters to aircraft meant to last three years or more to fall 1.5 percent last month after December’s previously reported 4.2 percent tumble.

A plunge in aircraft orders at Boeing and a drop in motor vehicles orders saw orders for transportation equipment falling 5.6 percent in January. It was the second straight month of declines in this volatile component.

Boeing reported on its website it received orders for only 38 aircraft last month, sharply down from 319 planes in December.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 1.7 percent after dropping by a revised 1.8 percent in December.

Economists had expected orders for these so-called core capital goods to slip 0.5 percent last month after a previously reported 0.6 percent fall in December.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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RBS seeks to regain trust after post-crisis losses hit $77 billion

LONDON (Reuters) – Royal Bank of Scotland sought to shake off its reputation as Britain’s pariah bank on Thursday with plans to cut more costs and reposition itself as a UK-focused retail and commercial lender.

New chief executive Ross McEwan is under pressure to restore RBS’s standing with its political masters and the general public after a year of fines, customer complaints and technology problems.

The bank, which is 81-percent owned by the government, on Thursday posted an 8.2 billion pound ($13.64 billion) pretax loss for 2013 due to restructuring costs and misconduct charges.

That brings the total RBS has lost since it was bailed out in 2008 to 46 billion pounds ($76.53 billion)- just above the amount taxpayers paid for its rescue during the financial crisis.

“We are the least trusted company in the least trusted sector of the economy. That must change,” McEwan told an audience of employees and customers at The Trampery, a new business hub funded by RBS in the east of London.

Analysts warned it would take time for investors to see the benefit of the restructuring and there were high risks to the plan. RBS stock was the top faller among European banking shares, down 8 percent.

“We are skeptical of there being a lot of low-hanging fruit in the cost-save department given 7 billion pounds in restructuring charges taken under previous management,” Jason Napier, analyst at Deutsche Bank, who has a “sell” rating on the shares.

McEwan said the bank would need to think about the implications for its Edinburgh headquarters if Scotland voted in favor of independence in September.

Insurer Standard Life said earlier on Thursday it could move part of its business out of Scotland if it votes to leave the United Kingdom.

RBS said independence would likely hit its credit ratings, a move that would typically increase funding costs.

“This is a huge issue for Scotland and we are neutral and won’t do anything to raise the temperature of that vote,” McEwan said.


RBS has become, as one parliamentarian put it this week, “the unacceptable face of British banking”. While taxpayers sit on a paper loss of around 16 billion pounds, it has continued to pay bumper bonuses.

This year, RBS is paying out 576 million pounds in staff bonuses for 2013, down 15 percent on the year before. Britain’s deputy prime minister Nick Clegg later said on UK television, that a lossmaking bank, “shouldn’t be dishing out ever larger bonuses.”

McEwan, who has waived his bonus for last year, defended the payouts, which had been agreed with UK Financial Investments, the agency that manages the government stake.

“We need to be pragmatic. I need to pay these people fairly in the market place to do the job,” he said.


RBS’s global ambitions nearly felled the bank and it has made huge progress in slashing 1 trillion pounds off what was once the biggest balance sheet in the world.

McEwan wants to simplify the bank further by cutting its divisions from seven to three, reducing investment banking and shrinking its hundreds of committees.

He said the decision to focus the bank around three core areas – retail, commercial and corporate – and to concentrate 80 percent of the bank’s assets in the UK, from 60 percent now was not politically motivated.

“This is our plan. We own it,” he said.

The government pushed out McEwan’s predecessor, Stephen Hester, last year partly because of his continuing commitment to the bank’s large investment banking franchise.

Britain’s finance ministry said McEwan’s plan delivered the government’s vision for a bank focused on lending to British businesses and families.

RBS is planning to cut costs by 5.3 billion pounds, or 40 percent, over the next three to four years, with 3.1 billion of that coming from the sale of businesses such as its U.S. retail franchise Citizens and the rest from cutting overheads.

In the meantime, RBS warned that there would be “elevated” restructuring costs over the next two years to get the bank’s customer service up to scratch and its costs down.

Unlike Lloyds, which also received a state bailout and has been selling its government-owned shares, RBS is years away from privatization.

“We need to recognize that we are not yet a strong enough bank that can be privatized at a profit for the taxpayer in the immediate future,” McEwan said.

“There is no point avoiding this inconvenient truth.”

(Writing by Carmel Crimmins; Editing by Erica Billingham)

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Greece’s lenders accept lower capital ratio for bank health test: source

ATHENS (Reuters) – Greece’s international lenders have agreed that a lower capital ratio can be used in a second stress test of the country’s major banks, bringing it in line with a European banking benchmark, a banker close to negotiations told Reuters on Thursday.

The country’s central bank has run a second health check on National Bank (NBGr.AT), Alpha Bank (ACBr.AT), Piraeus Bank (BOPr.AT) and Eurobank (EURBr.AT) to assess whether last summer’s 28 billion euro recapitalization has left them capable of absorbing future shocks as bad loans keep rising.

The ‘troika’ of lenders from the International Monetary Fund, European Commission and European Central Bank had wanted the test to be based on a Core Tier 1 capital adequacy ratio of 9 percent, the same as that used in the first round of domestic health checks in 2012.

That rate reflected the high rate of bad loans in Greece’s banking sector.

But the lenders agreed to cut the rate to 8 percent for the second check, bringing it into line with the benchmark used for European bank stress tests.

“The troika has agreed to a Core Tier 1 ratio of 8 percent in the baseline scenario,” the banker said.

The lower reference rate will mean lower capital needs for Greece’s four main banks.

The four are expected to need about 5 billion euros ($6.83 billion) in extra capital, two senior banking sources told Reuters last week, near the bottom of estimates that have ranged from 4.5 billion to 15 billion euros.

The troika, which met with the Bank of Greece’s top brass on Wednesday, is checking the methodology used in the stress test. The two sides are expected to hold another meeting before the results are released by late next week, the banker said.

Non-performing loans held by Greek banks rose to about 31 percent of their total loan book at the end of the third quarter last year from 29.3 percent at the end of the first half.

(Reporting by George Georgiopoulos; Editing by John Stonestreet)

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