Lloyds Banking Group returned to profit in the first three months of this year, but losses on commercial real estate in Ireland are still a problem.
The bank said it expects to deliver a profit in 2010 as losses on bad debts fall.
Bailed-out Lloyds, 41 per cent state-owned, said today it expects to deliver a profit on a combined basis at both the half-year and full-year.
"This is far earlier than expected," said Andrew Lim, analyst at Matrix. "Consensus was pointing to a return to profitability for full year 2010, with second half profits more than offsetting losses in the first half. This will be taken as very good news indeed."
Its shares opened 3.9 per cent higher.
The trend of impairments has "slowed significantly" and is performing better than its guidance two months ago in both its retail and wholesale divisions, helped by management of problem loans and economic improvement, the bank said.
"Impairments have slowed significantly in the first few months of the year, giving us confidence that we will achieve a better financial performance than previously guided," chief executive Eric Daniels said in a statement.
Losses on commercial real estate in Ireland remain a problem and impairments in the international division remained at a high level in the first quarter, although below the fourth quarter of 2009, Lloyds said.
Positive guidance on profits and bad debts from Lloyds last month boosted its shares, which have since climbed over 26 per cent to close yesterday at 70.24p, above the average price of 63.2 pence paid by the government for its stake, net of fees already received.
Lloyds was saddled with billions of pounds of losses from its controversial purchase of mortgage lender HBOS in January 2009, but it said it is on track to deliver cost savings of £2 billion from that deal by the end of next year, on a run-rate basis.
Its net interest margin is running in line with guidance and should be about 2 per cent for 2010 and customer deposits grew by over £5 billion in the first quarter, mainly in retail.
Reuters