Lloyds says it is set to return to profit

BAILED-OUT British lender Lloyds Banking Group said yesterday it would return to profit this year thanks to a bigger than expected drop in bad debts, wrong-footing forecasts for another loss and sending its shares sharply higher.

Lloyds, which sank £6.3 billion (€6.99 billion) into the red last year after being hit by a steep jump in bad loans, "believes that it will be profitable on a combined basis in 2010", it said in an unscheduled trading statement.

The bank said the improved outlook reflected "good" overall trading in the first 10 weeks of 2010, with bad debts "trending at lower levels than anticipated" and costs falling compared with the same period last year.

Lloyds shares were up 10 per cent at 61p by 1pm yesterday, making them the top riser in the FTSE 100 share index, and bringing them closer to the average 74p level at which the British state bought a 41 per cent stake in the lender to prop it up after the 2008 banking crisis.

Analysts said news that bad debts were falling faster than hoped in 2010 would be reassuring, after a previously flagged drop in impairments during the second half of last year fell short of some investors' expectations.

"Having disappointed a little bit with the full-year results, this kind of puts them back on track," said Simon Willis, banks analyst at stockbroker NCB.

Lloyds is forecast to make a £300 million loss this year, analysts said, citing the bank's own calculation of consensus expectations.

Lloyds' stronger performance and rising share price make it more likely that the British government will try to sell part of its stake in the bank before a general election expected to take place in May, said Execution Noble analyst Joseph Dickerson. "The stock should be strong today and we anticipate follow-through, but would flag the prospect of a pre-election placing in the stock."

The British government has said it hopes to generate a profit for the taxpayer by selling its bank holdings, but has not set a timetable for disposals.

Lloyds, which cut 13,000 jobs in 2009, is also pushing through an austerity drive aimed at taking out £2 billion in costs by the end of 2011. - (Reuters)