Bailed out British lender Lloyds Banking Group said it would return to profitability in 2010, helped by a steeper-than-expected fall in bad debts and further cost cuts.
Lloyds, which sank to a £6.3 billion loss last year after being hit by a steep rise in bad loans, "believes that it will be profitable on a combined basis in 2010", it said today in an unscheduled trading statement.
The bank said its overall performance in the first 10 weeks of the year was "good", with bad debts "trending at lower levels than anticipated", while costs were lower than in the same period last year.
Lloyds shares were up 8.01 per cent at 59.95 pence by 9.33am, making them the top riser in the FTSE 100 share index.
Joseph Dickerson, banks analyst at stockbroker Execution Noble, said Lloyds' improved performance made it more likely the British government will try to sell part of its stake in the bank before an election expected to take place in May.
"The stock should be strong today and we anticipate follow through, but would flag the prospect of a pre-election placing in the stock," he wrote in a note.
Lloyds, Britain's biggest retail bank, is 41 per cent owned by the British government after receiving a series of bailouts in the wake of the 2008 banking crisis.
The group, created by the government-engineered takeover last year of ailing mortgage lender HBOS by high street rival Lloyds TSB, has been hit by spiralling bad debts as loans advanced during the boom years turned sour.
Lloyds, whose loans as a ratio to deposits stood at 169 per cent at the end of last year, high by industry standards, is also striving to bridge the gap so as to reduce its reliance on expensive wholesale funding.
The bank had already said last year that its bad debts had peaked, and confirmed last month that total loan impairments fell by about a fifth in the second half of 2009.
Lloyds, which cut 13,000 jobs last year, is pushing through an austerity drive aimed at taking out 2 billion pounds in costs by the end of 2011.
The bank's 2009 results were reported on a "combined business" basis, which excludes some accounting items associated with the HBOS acquisition, and assumes HBOS was acquired at the start of 2008.
LLoyds £6.3 billion pound loss last year compares with a £6.7 billion loss the previous year.
Reuters