* Expects 2 bln stg cost reduction in 2014 from 2010
* Q1 underlying profit 1.48 bln stg vs 497 mln
* Says Verde IPO likely next year
* Shares in Lloyds hit near two-year high (Adds CEO comments from conference call)
By Matt Scuffham
LONDON, April 30 (Reuters) - State-backed Lloyds BankingGroup reported a jump in first-quarter profit and uppedits cost savings target, helping its shares close in on thegovernment's break-even price as they hit a near two-year high.
Lloyds, 39-percent owned by the British taxpayer, said itsunderlying profit trebled to 1.48 billion pounds ($2.3 billion),benefiting from improved margins, lower costs, and fallinglosses on bad loans.
Shares in the bank topped the FTSE 100 risers, gaining asmuch as 6.9 percent and hitting a high of 57.2 pence. Thegovernment considers a sale at 61 pence would enable it to breakeven after it pumped 20.5 billion pounds into the bank to keepit afloat during the 2008 financial crisis.
Chief Executive Antonio Horta-Osorio said Lloyds had madesubstantial progress during the quarter. However, he said he wasfocused on improving the bank's performance and had not heldtalks with the government or UK Financial Investments (UKFI),which manages Britain's stake, over a share sale.
"It's management's job to operationally prepare the bank aswell as possible in order for shareholders to decide aboutprivatization. It is ultimately up to UKFI and the Treasury todecide on that and we have not been holding discussions withthem in that regard," he told reporters.
Industry and political sources have told Reuters thegovernment is keen to start selling off shares in the bank aheadof the 2015 general election. A sale of shares in Lloyds is seenas more realistic for the government than selling down its 81percent shareholding in Royal Bank of Scotland.
An important step towards an eventual share sale could be aresumption of dividend payments. However, finance directorGeorge Culmer said Lloyds still had "hurdles" to overcome beforethat would be possible.
Lloyds' capital strength has come under scrutiny after theBank of England's Financial Policy Committee said last monththat UK banks needed about 25 billion pounds of extra capital.Analysts had said that meant Lloyds might need to raise cash.
Lloyds said it was waiting for Britain's financial marketregulator to decide what action might be required of banks afterthe FPC's estimates, but was confident in its capital position.
Its core capital was 12.5 percent at the end of March andshould be 9 percent at the end of this year, based on the fullimpact of new Basel III capital rules. That should rise above 10percent by the end of 2014, it said.
Lloyds said it was pushing on with plans to float 630branches making up the Verde business that European authoritieshave ordered it to sell as a price of the state bailout.
A planned sale of the network to the Co-operative collapsed last week and the bank is now pursuing an initialpublic offering (IPO), which will probably take place in 2014,Culmer said.
Culmer said the cost of selling the branches would increaseby between 200 million and 300 million pounds as a result ofswitching to an IPO. The total cost will rise to as much as 1.6billion, he said.
The bank said costs in the first quarter fell 6 percent froma year ago and it expected to cut costs to about 9.15 billionpounds in 2014, a reduction of 2 billion pounds ($3.1billion)from 2010 and double the target in its restructuringplan.
($1 = 0.6454 British pounds) (Additional reporting by Steve Slater; Editing by Tom Pfeifferand Helen Massy-Beresford)
Lloyds (LLOY)