UPDATE 3-UK's Lloyds targets wealth push and office cuts after profit drop

(Adds CEO, CFO and analyst comments)

* Profit falls to 1.2 billion pounds but beats consensus

* Bank aims to cut office space by 20%

* Lender targets push in insurance, wealth

By Iain Withers and Lawrence White

LONDON, Feb 24 (Reuters) - Lloyds Banking Group's
outgoing Chief Executive António Horta-Osório set out fresh
targets to expand the lender's insurance and wealth business and
further cut costs, as the bank resumed a dividend despite a
sharp fall in profits for 2020.

Britain's biggest domestic lender reported pretax profits of
1.2 billion pounds ($1.7 billion), well down on 4.4 billion
pounds the previous year, after pandemic lockdowns shrank
household spending and drove up provisions for bad loans.

But it still beat the average of analyst forecasts of 905
million pounds.

The strategy update showed Lloyds aimed to offset pressure
on profits, including from wafer thin central bank interest
rates, by axing costs further and increasing income from
fee-based products such as wealth management and corporate
banking.

The squeeze led net income to fall nearly 3 billion pounds
over the year to 14.4 billion.

Horta-Osório said the bank would increase funds from
insurance and wealth customers by 25 billion pounds by 2023 and
expands its currency and rates services for corporate customers.

Lloyds will also cut office space by 20% within three years,
the second British lender to unveil such plans this week after
HSBC announced a 40% cut to its footprint as banks look to
capitalise on remote working brought on by the pandemic.

Lloyds said its overall costs would be trimmed below 7.5
billion pounds by the end of this year and it would invest 900
million pounds on digitising more of its services.

The bank's shares were up 2% at 09.47 GMT, amid a 0.6% fall
in the wider FTSE 350 index of banks.

"Faced with lower margins, higher volumes seem to be the
answer for Lloyds," said Susannah Streeter, analyst at
Hargreaves Lansdown.

Horta-Osório, who led a turnaround at the bank after its
bailout in the financial crisis, is leaving Lloyds after a
decade to stand for election as chairman of Credit Suisse
in April.

HSBC executive Charlie Nunn is set to replace Horta-Osório,
starting in August.

ENCOURAGING SIGNS

Similar to the situation at rivals HSBC, NatWest
and Barclays, Lloyds' profits were dented by
bad loan provisions.

Lloyds set aside 4.2 billion pounds to cover loans expected
to sour, although this was less than the 4.5 billion to 5.5
billion pound range previously given.

Lloyds Chief Financial Officer William Chalmers said the
pace of Britain's vaccine rollout and the government's roadmap
to phase out lockdowns were encouraging and paved the way for
better UK growth than the 3% core forecast by the bank for 2021.

The bank said it would pay a 0.57 pence dividend per share,
the maximum allowed by the Bank of England and above a forecast
of 0.53 pence.

Chalmers said the bank would consider an interim dividend
halfway through the year and revert to a "stable dividend
policy" from next year depending on economic conditions.

The bank grew its mortgage book by 7.2 billion pounds, as it
capitalised on a pandemic-driven boom in home sales.

The bank's core capital ratio, a key measure of financial
resilience, increased to 16.2% compared to 15.2% in September.

Costs for past misdeeds chipped into profits, including an
85 million pound charge for processing delays on a final batch
of mis-sold payment insurance claims and 159 million pounds for
compensation and costs for historic fraud at its HBOS Reading
branch.

Horta-Osório's pay package for 2020 fell to 3.4 million
pound, after he and other executives waived bonuses for the year
due to the pandemic. He was paid 4.7 million pounds the previous
year.

($1 = 0.7048 pounds)
(Reporting by Iain Withers and Lawrence White; Editing by
Edmund Blair)