UPDATE 1-Lloyds flags dividend revival as turnaround accelerates
LONDON, Aug 1 (Reuters) - State-backed Lloyds expects to meet its targets on cost savings, capital strength and margins earlier than expected, laying the groundwork for a revival of dividends and for Britain to start selling its stake in the bank.
The UK's largest retail lender will start talks with regulators in coming months about restarting shareholder payouts, seen as a key part of the government's campaign to offload its 39 percent holding in the bank.
Lloyds assured investors it could meet any additional capital requirements without having to issue shares or bonds, unlike larger rival Barclays, which this week announced a 5.8 billion pound ($8.8 billion) rights issue to help it plug a 12.8 billion capital shortfall.
Despite the Barclays share sale, Britain is expected to start selling shares in Lloyds shortly with a sale of stock worth about 5 billion pounds.
"While the UK economy remains subdued and we await further clarification on the detail of regulatory implementation, including on capital and ringfencing, we expect to deliver further progress in the remainder of 2013 and beyond," Chief Executive Antonio Horta-Osorio said in a statement.
Lloyds reported a profit of 2.1 billion pounds for the six months to the end of June, rebounding from a loss of 456 million a year ago, despite taking another 500 million pounds charge for the mis-selling of insurance protection products.
The bank said it was ahead of schedule in revamping its business and said it now expected to meet a group net interest margin, a key measure of profitability, of 2.1 percent for 2013 compared with previous guidance of 1.98 percent.
Lloyds said it expected to shrink its non-core assets to under 70 billion pounds by the end of this year, 12 months ahead of schedule. Total costs will be around 9.6 billion pounds this year, 200 million less than previously indicated.