LONDON Lloyds Banking Group's (LLOY.L) first-quarter profit jumped and the bank upped its cost savings target, sending shares to a near two-year high and close to the price at which the state could break even if it sold its stake.
Shares in Lloyds, 39 percent-owned by the British taxpayer, gained as much as 6.9 percent and hit a high of 57.2 pence, after it said underlying profit trebled to 1.48 billion pounds ($2.3 billion), on improved margins, lower costs, and falling losses on bad loans.
Chief Executive Antonio Horta-Osorio said Lloyds had made substantial progress during the quarter but he was focused on improving its performance and had not held talks with the government or UK Financial Investments (UKFI), which manages Britain's stake, about a share sale.
"It's management's job to operationally prepare the bank as well as possible in order for shareholders to decide about privatization. It is ultimately up to UKFI and the Treasury to decide on that and we have not been holding discussions with them in that regard," he told reporters.
A spokesman for Britain's finance ministry told Reuters on Tuesday that no date had been set for the sale of shares.
"We haven't put a timetable on anything and we won't at this stage. We want Lloyds to continue to make the progress it's making, becoming a strong and sustainable bank," he said.
The government considers a sale at 61 pence would enable it to break even after it pumped 20.5 billion pounds into the bank to keep it afloat during the 2008 financial crisis.
Industry and political sources have told Reuters the government is keen to start selling off shares in the bank ahead of the 2015 general election, a move seen as more realistic for the government than selling down its 81 percent shareholding in Royal Bank of Scotland (RBS.L).
An important step towards an eventual share sale could be a resumption of dividend payments. However, finance director George Culmer said Lloyds still had "hurdles" to overcome before that would be possible.
Lloyds' capital strength has come under scrutiny after the Bank of England's Financial Policy Committee said last month that UK banks needed about 25 billion pounds of extra capital. Analysts had said that meant Lloyds might need to raise cash.
Lloyds said it was waiting for Britain's financial market regulator to decide what action might be required of banks after the FPC's estimates, but was confident in its capital position.
Its core capital was 12.5 percent at the end of March and should be 9 percent at the end of this year, based on the full impact of new Basel III capital rules. That should rise above 10 percent by the end of 2014, it said.
Britain's biggest retail bank said its core loan book had returned to growth earlier than expected. Core loans increased by 600 million pounds in the quarter, ahead of guidance. That included a 4 percent rise in lending to small businesses.
Lloyds is pushing on with plans to float 630 branches making up the Verde business that European authorities have ordered it to sell as a price of the state bailout.
A planned sale of the network to the Co-operative CWSGR.UL collapsed last week and the bank is now pursuing an initial public offering (IPO), which will probably take place in 2014, Culmer said.
Culmer said the cost of selling the branches would increase by between 200 million and 300 million pounds as a result of switching to an IPO. The total cost will rise to as much as 1.6 billion, he said.
The bank said costs in the first quarter fell 6 percent from a year ago and it expected to cut costs to about 9.15 billion pounds in 2014, a reduction of 2 billion pounds ($3.1 billion)from 2010 and double the target in its restructuring plan.
Lloyds said complaints about the mis-selling of insurance on loans and mortgages were falling in line with its expectations. It has already set aside 6.8 billion pounds to compensate customers mis-sold payment protection insurance having sold more of the flawed policies than its rivals.
Lloyds also said that Ireland's financial regulator Matthew Elderfield would join the bank in October to oversee compliance and conduct risk. Elderfield has spent the past three years overhauling a watchdog that failed to rein in years of reckless lending that pushed the Irish economy to the brink.
(Additional reporting by Steve Slater; Editing by Tom Pfeiffer and Helen Massy-Beresford)