Lloyds CEO Sees Turnaround Completion in 2014 as Sale Looms

Lloyds Banking Group Plc Chief Executive Officer Antonio Horta-Osorio said he expects to complete his turnaround plan as soon as next year just as the government tries to reduce its stake in the bank.

“I said when I was appointed two years ago that this would be a long and difficult journey which would take three to five years,” he said in an interview before speaking at a conference in Estoril, Portugal yesterday. “In spite of a more difficult economic environment, we will do it at the low end of the three to five years.”

Horta-Osorio, 49, spoke after Lloyds, Britain’s biggest mortgage lender, swung into profit in the first quarter as impairments for souring loans dropped by more than analysts estimated. The stock has climbed 13 percent this year, making it the best-performing of Britain’s five biggest lenders.

The government, which owns 39 percent of the London-based lender after giving it a 20 billion-pound ($31 billion) bailout in 2008 following its takeover of HBOS Plc, is seeking to reduce its stake before a general election due in 2015. Chancellor of the Exchequer George Osborne, constrained by the biggest austerity program since World War II, could use the proceeds of a sale to fund tax cuts or more spending before the vote.

Shares of Lloyds and Royal Bank of Scotland Group Plc, the recipient of a 45.5 billion-pound government bailout, are both trading for less than what the Treasury originally paid for them. Based on yesterday’s closing prices, the government’s loss on Lloyds is about 5 billion pounds and on RBS almost 18 billion pounds.

Government Decision

Earlier this year, the Treasury reduced the price below which it would recognize a loss from selling its stakes in the two lenders to take into account fees the lenders paid the Treasury, officials with knowledge of the matter said in March.

Lloyds rose 0.1 percent in London trading yesterday to close at 54.26 pence, less than the 61 pence at which the government now expects to break even on the investment and the 73.6 pence the Treasury originally paid.

“It’s still up to the government to decide when and how to privatize the bank,” Horta-Osorio said yesterday. “It’s our duty to operationally improve the bank prudently and as quickly as possible.”

The bank posted a net profit of 1.53 billion pounds in the first quarter, compared with a 5 million-pound loss in the year-earlier period. Provisions fell 40 percent to 1 billion pounds, the lender said on April 30.

Dividend Plans?

The bank also set aside no additional funds to compensate clients mis-sold payment-protection insurance. Redress for customers sold insurance that didn’t cover them adequately or that they didn’t need has cost Lloyds 6.8 billion pounds, more than any other British lender.

“As our legacy issues -- especially PPI -- get to an end, it’s easy to envisage that statutory profitability will increase very significantly,” Horta-Osorio said. “We are not going to need a lot of capital to sustain increases in net lending. Therefore, Lloyds will go back in the future to a high-dividend stock as it used to be.”

He declined to say when the lender may resume paying a dividend. The bank last paid one in October 2008, according to data compiled by Bloomberg.