Lloyds says to return to profit in 2010

Lloyds, which sank to a 6.3 billion pounds 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 on Friday in an unscheduled trading statement.

The bank said its overall performance in the first 10 weeks of the year was "good," buoyed by a faster than expected drop in bad loans, while costs were lower than in the same period a year earlier.

Lloyds, Britain's biggest retail bank, is 41 percent owned by the state after receiving a series of bailouts in the wake of the 2008 banking crisis.

The group, created by the takeover that 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.

The bank said last year that bad debts had peaked, with the overall level of loan impairments falling by about a fifth in the second half of 2009.

Lloyds, which cut 13,000 jobs last year, is also pushing through an austerity drive aimed at taking out 2 billion pounds in costs by the end of 2011.

Lloyds shares closed at 55.5 pence on Thursday, valuing the company at about 38.4 billion pounds.

(Reporting by Myles Neligan; Editing by Mike Nesbit)