Shares in Britain’s biggest retail bank dropped four percent even though it also reported its first pretax profit since being bailed out by the government at the height of the financial crisis.

The Lloyds earnings update came a day after fellow state bailout recipient the Royal Bank of Scotland also disappointed investors because of bad debts at its Irish division.

Lloyds reported a net loss of 258 million pounds ($415 million) for the full year, compared with a 2.9 billion pound profit in 2009. Total income, net of insurance claims, rose to 24.96 billion pounds from 23.28 billion pounds.

A 2.2 billion pound pretax profit, compared with a 6.3 billion pound loss the year before, was slightly better than analysts had expected.

But the focus was on potential warning bells.

Money set aside for bad loans fell 45 percent overall to 13.2 billion pounds, but deterioration in its international business, particularly in Ireland, where impairment charges rose 49 percent to 4.3 billion pounds, and Australia were notable.

Outgoing chief executive Eric Daniels said the bank was “managing closely” the situations in those two countries.

Daniels said that the rate of improvement in loan impairments that helped drive the 2010 pretax profit would not be as dramatic this year amid slower British economic growth.

That meant that 2011 and 2012 profit estimates might need to be revised, analysts said. Lloyd’s stock was down 4.1 percent at 63.08 pence in midmorning trade on the London Stock Exchange.

Ian Gordon, an analyst at Exane BNP Paribas, said the results highlighted problems caused by Lloyds’ takeover of debt-loaded Halifax/Bank of Scotland at the height of the financial crisis.

“As CEO Eric Daniels takes his final bow today, long-term investors may have mixed emotions,” Gordon said in a note.

“The true horrors of the HBOS acquisition can never be unwound, and ... a large element of the associated value destruction is seemingly permanent.” Daniels said the bank had made “considerable progress during the year in reducing the group’s risk".

“We also made good progress in reducing the size of our balance sheet and substantially strengthened both our capital and funding positions,” he added.

Analysts are waiting for more detail about the strategy of incoming chief executive, former Santander UK CEO Antonio Horta-Osario — who takes over on March 1.

The Royal Bank of Scotland, Britain’s largest government-owned bank, missed analysts expectations with a 1.1 billion pound full-year loss despite returning to profit in the final quarter of the year.

Taxpayers own around 84 percent of RBS and 41 percent of Lloyds after both were bailed out by the government during the financial crisis.

The government is expected to gradually sell off those stakes, but any sale is unlikely before the body set up to investigate problems in the banking sector, the Independent Commission on Banking, publishes a report in September.

Like RBS, Lloyds made no comment on a sale timeline in its earnings report.

Analysts have speculated that Horta-Osario may speed up the sale of 600 retail branches of the bank it was instructed by European regulators to sell off as a condition of the 20 billion pound government bailout.

Barclays PLC, which shunned state assistance, last week reported a strong rise in 2010 net profit to 3.56 billion pounds from 2.63 billion in 2009.

Lloyds received a further blow last week when subsidiary Halifax revealed it would have to pay 500 million pounds in compensation after admitting confusing 600,000 customers about whether a cap on its standard variable rate mortgage applied to them. That charge will impact on the group’s 2011 results.