James Moore: Black horse is running into form but there are more hard races ahead

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The Independent Online

Outlook It seems like the black horse is feeling a little frisky again. Profits up, bad debts down, no increase in provisions for payment protection insurance compo, suggesting that Lloyds may finally be past the worst of that debacle.

Even one or two of the more sceptical analysts were moved to give it a couple of sugar lumps for a job well done. There are tentative signs that Antonio Horta-Osorio might find himself running something like a normal bank soon. He even managed to oversee a modest increase in net lending.

At this rate, there will be some interesting discussions when the remuneration committee meets next, particularly if the group chairman Sir Win Bischoff suggests that it might be a good idea to pay the members of the executive committee their bonuses this year.

The problem for Lloyds is that becoming a normal bank brings with it a whole new set of problems. That's if it can really be considered to be anything like a normal bank.

Remember, the business only owes its current construction to the fact that the competition rules were torn up to allow it to buy HBOS, an acquisition that directly led to a £20bn state bailout Lloyds wouldn't have needed if its former management hadn't been willing to listen to some very panicky politicians and Treasury officials.

We don't know what promises were made when the black horse rode to HBOS's rescue – assurances that the regulators would be kept sweet, a bauble or two from Her Majesty, who knows, maybe even ermine for those who were eligible. But we do know that it's foolish to take a politician's promise at face value.

The current administration isn't going to rock the boat too much, beyond its banking levy, because it wants to be able to sell the taxpayer's shares and take the credit to the bank.

But what about after that? New, private sector shareholders are going to want a bit more growth than can be provided by the UK's torpid economy. How does Lloyds get it given it doesn't have much business outside the UK?

If it tries to use its power to grab market share in areas where it is strong like mortgages, or current accounts, the competition watchdogs will come calling. If it tries to boost margins by hiking prices, the competition watchdogs may still come calling. There's always the option of cost-cutting, but that won't go down well with the regulators if it leads to a chorus of consumer complaints, as it very likely will.

The black horse may indeed by within sight of the winning post in its current race. But its next start promises to be just as tough.