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By Iain Withers and Lawrence White
LONDON (Reuters) - Lloyds Banking Group smashed quarterly profit forecasts and freed up some cash set aside to cover bad loans, ending CEO António Horta-Osório's decade in charge on a high as Britain's pandemic-hit economy shows signs of recovery.
Britain's biggest domestic lender said on Wednesday it made 1.9 billion pounds ($2.64 billion) of pretax profit in the first three months of the year, comfortably ahead of analysts' forecasts and the 74 million pounds reported a year earlier.
The results showed further signs of how government measures such as job support schemes have pushed back economic pain from the pandemic, with banks' loan books still holding firm.
"We have started to see positive signs in the UK, including stronger economic data, and the successful progress of the vaccine rollout," Horta-Osório told reporters after his final earnings report at Lloyds.
The bank's profits were boosted by the release of 459 million pounds that had been set aside for expected bad loans. It had been forecast to book more charges to cover soured debts.
Lloyds' pandemic provisions to date still stand at over 3 billion pounds.
Banks across Europe including HSBC, Deutsche Bank and Santander have reported better than expected earnings this week, despite ongoing concerns about further COVID-19 waves.
Like HSBC, Lloyds said the economic outlook in Britain now looked better than it had initially feared, leading to the provisions release and improved guidance for the year.
Lloyds said return on tangible equity was now expected to be 8-10% this year, while net interest margin would be above 2.45%. Costs would be trimmed below 7.5 billion pounds, it said.
The forecasts had previously been 5-7%, 2.4% and at 7.5 billion pounds, respectively.
Lloyds shares rose 5% in early trading.
Horta-Osório is leaving Lloyds to become chairman of crisis-hit Swiss bank Credit Suisse, with his appointment expected to be confirmed at an investor meeting on Friday. HSBC executive Charlie Nunn is set to join Lloyds as CEO in August.
The Credit Suisse job is seen as one of the toughest in banking. The Swiss lender is reeling from multibillion-dollar losses from the collapse of family office Archegos, the fallout from insolvent UK finance firm Greensill and a spying scandal last year that ousted its former CEO Tidjane Thiam.
Horta-Osório declined to comment on his plans for Credit Suisse.
The Portuguese-born banker is credited with turning round Lloyds' fortunes after its bailout in the 2007-09 financial crisis, including fully returning the lender to private hands in 2017.
He told reporters the highlight of his time in charge was telling his team the bank had been fully privatised, while the lowest point was the stress of the early days when the bank was close to collapsing.
Horta-Osório has won plaudits for raising the profile of mental health in workplaces, after speaking out about his experiences of being signed off work for two months in 2011 for stress-induced insomnia and exhaustion.
But he also faced criticism from politicians for his high pay and handling of the fallout from a major fraud at the group's HBOS branch in Reading, central England.
Horta-Osorio said the UK banking system was better capitalised than before the financial crisis and able to weather the economic impact of the pandemic.
"It's a difficult economic scenario ... but the provisions are already on our balance sheet. When you look at the UK financial sector, and its main players, I can tell you frankly I think they're in a very different position."
($1 = 0.7205 pounds)
(Reporting by Iain Withers and Lawrence White. Editing by Anna Irrera and Mark Potter)
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