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* 395 mln pounds paid out in staff bonuses
* CEO gets 1.7 million pound bonus
* Union criticises pay awards
* CEO says bank has time to assess Scottish independence
* Shares down 4 percent on fear of stock overhang
By Matt Scuffham and Steve Slater
LONDON, Feb 13 (Reuters) - State-backed Lloyds Banking Group said it was ready to return to private ownership afterreporting a pretax profit for the first time in three years.
Lloyds' Chief Executive Antonio Horta-Osorio has turnedaround the bank's fortunes since taking the helm in March 2011,slimming it down to focus on lending to UK households andbusinesses and meet tougher regulatory requirements on capital.
But the bank risked a political backlash by paying out 395million pounds in bonuses last year, up 8 percent on theprevious year, including a 1.7 million award to Horta-Osorio.His bonus will be paid in shares and is deferred for five years.
The bosses of Barclays and state-backed Royal Bankof Scotland have both waived their 2013 bonuses.Barclays angered politicians and unions this week by increasingbonuses for its investment bankers by 13 percent.
Lloyds, 33 percent owned by the government, said on Thursdayit made a statutory pretax profit of 415 million pounds ($688million) for 2013, up from a loss of 606 million in 2012, andincreased lending in Britain by 3 percent.
Horta-Osorio told reporters that the bank was now ready toreturn to full private ownership whenever Britain's financeministry and UK Financial Investments, which manages thegovernment's shares, decide it is right to do so.
"We absolutely consider ourselves back to normal. Itsabsolutely up to UKFI and the Treasury to decide how and when todispose of those shares," he said.
Lloyds needed a 20 billion pound bailout in the financialcrisis which left taxpayers with a 39 percent stake.
Finance Minister George Osborne wants to sell the sharesbefore the next election in 2015 and UKFI and the Treasury areassessing options for future sales. The government kicked offthe process with the sale of a 6 percent stake last September.
Banking and political sources expect a second sale ofLloyds' shares to institutions such as pension funds andinsurers in March or April followed by a larger offer includingretail investors later in the year.
Shares in Lloyds, which have more than doubled over the pasttwo years, were down 4 percent at 0945 GMT as analystsanticipated a possible stock overhang with the government sharesale approaching. Any offer to retail investors would need to bemade at a discount to the market price.
"(The) investment case is unaltered. However, (Lloyds)shares may flat-line ahead of any government placing," Numisanalyst Mike Trippitt said.
The Unite union on Thursday criticised a 2 percent pay risefor staff at branches and call centres this year at Lloyds,which has cut more than 35,000 jobs since its bailout.
"The CEO's 1.7 million bonus, on top of shares worthmillions awarded at the end of October are a kick in the teethto the taxpayer, and to hard-working staff who don't know ifthey will be next in line for the chop from one day to thenext," Unite national officer Rob Macgregor said.
Lloyds, which owns Bank of Scotland and is registered inEdinburgh, would be affected if Scotland voted for independencein September. Horta-Osorio said the bank would have time toassess its options.
"If the vote is a 'yes', there will be 18 months untilseparation is implemented so therefore we believe we have morethan enough time to assess the consequences or actions we wouldneed to take."
Lloyds and part-nationalised rival Royal Bank of Scotlandare drawing up contingency plans in the event of a "yes" vote,Reuters reported last week.
Lloyds said it expected to apply to the regulator in thesecond half of this year to restart dividends, which would boostthe prospect of further stake sales. It last paid a dividend in2008.
Horta-Osorio said he expects to pay out at least half ofLloyds' earnings in dividends over the medium term.
The bank took 3.5 billion pounds more in provisions lastyear to compensate customers for past mis-selling. The bank saidits core capital - a measure of financial strength - increasedto 10.3 percent.
