Lloyds Banking Group expects profit this year

LONDON -- Britain's Lloyds Banking Group PLC said Friday it expects to report a profit this year as trading has so far been strong and provisions for bad assets are not as large as previously forecast.

In a brief statement, the part-nationalized bank said that in the first 10 weeks of the year net interest margin has come in line with guidance and income growth has been good. It did not include any figures.

Lloyds shares jumped nearly 10 percent to 60.96 pence around midday on the London Stock Exchange on the news.

"Lloyds is truly into its recovery phase," said Ian Gordon, analyst at Exane BNP Paribas.

"For us, sharply improving impairments is the key message today, and we expect consensus forecasts to rise," Gordon added.

Last month, Lloyds reported a net profit of 2.8 billion pounds ($4.26 billion) for 2009 though its pretax loss of 6.3 billion pounds was slightly worse than expected. At that time, the bank said it believed impairments for bad loans and other assets, which amounted to 24 billion pounds in 2009, had peaked.

Impairments in the second half of 2009 were 21 percent lower than in the first half, and Lloyds had said it expected a similar pace of improvement this year.

Other analysts were cautious about Lloyds' prospects.

"Lloyds remains a very high-risk investment and we would remind income investors the group is prohibited from paying an ordinary dividend for two years," Jonathan Jackson at Killik & Co.

"Given that interest rates are at a 350-year low, it is not surprising that credit quality is improving," said Bruce Packard, analyst at Seymour Pierce. "But U.K. households are around three times more indebted than during the early 1990's recession, and consensus forecasts for growth look far too optimistic compared to how the banks grew income coming out of the last recession."

Lloyds Banking Group was formed last year when Lloyds TSB took over Halifax/Bank of Scotland. Largely because of HBOS' shaky lending portfolio, the new company was bailed out by the government, which now holds a 41 percent stake.

Lloyds shares are still trading well below the 74 pence which the government paid for its stake.