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Lloyds in dividend dispute with regulator - paper

LONDON, Oct 7 (Reuters) - Part state-owned Lloyds Banking Group is embroiled in a dispute with Britain's financial watchdog over its plans to return cash to shareholders, the Sunday Times reported.

The newspaper, without citing sources, said Chief Executive Antonio Horta-Osorio wants to pay a small dividend in 2014 but the Financial Services Authority (FSA) is threatening to block the move because it thinks the bank should preserve its capital to protect itself from the threat of a euro zone break up.

Lloyds, which is 40 percent owned by the UK taxpayer following a government bailout, is keen to resume dividend payments as soon as possible, but such a move is dependent upon how much capital UK banks will need to satisfy the European implementation of global Basel III rules.

"We have always said we would like to recommence progressive dividend payments, when the financial position of the group and market conditions permit, and after regulatory capital requirements are defined and prudently met. We work productively with all regulators in that respect," Lloyds said on Sunday.

New global rules, known as Basel III, mean banks have to hold more capital in reserve to cover loans that could turn bad. The aim is to create a bigger safety net to protect taxpayers from having to bail out banks.

Resuming dividend payments would be seen as a significant milestone in Lloyds' recovery after Britain pumped in 20 billion pounds to rescue the bank in 2008, and a precursor to the eventual sale of the government's stake.

Lloyds shares closed at 37.8 pence on Friday, meaning taxpayers are currently sitting on a loss of about 8 billion pounds.

The Sunday Times said Lloyds began talks with the FSA about resuming dividend payments last month and was targeting paying a dividend in early 2014.

(Reporting by Matt Scuffham; Editing by Mark Potter)

((matthew.scuffham@thomsonreuters.com)(02075426734)(Reuters

Messaging: matthew.scuffham.reuters.com@reuters.net))

Keywords: LLOYDS DIVIDEND/