Lloyds is set to follow rival Royal Bank of Scotland with a hefty 2011 loss, highlighting the difficulty Britain faces in trying to sell the stakes in the two banks it acquired when it bailed them out more than three years ago.

Lloyds, 40 percent owned by the British government, will bear the brunt of writedowns and restructuring costs, as it sells non-core businesses and cuts thousands of jobs.

Bank of America Merrill Lynch has forecast a loss of around 2.3 billion pounds ($3.6 billion), while Deutsche Bank has put the figure at 4.1 billion, against a 2010 profit of 281 million. Lloyds itself says the consensus forecast is for a 4 billion loss.

The annual results presentation will be the first since Chief Executive Antonio Horta-Osorio took nearly two months off work with a fatigue-related illness at the end of 2011, which raised doubts over whether or not he could cope with the job.

Horta-Osorio returned to work in January and has since streamlined Lloyds' management structure to ease his workload.

On Thursday, RBS, which is 82 percent owned by the government, reported an annual loss of around 2 billion pounds.

RBS cut bonuses for its investment banking staff, although average pay for investment bankers still stood at around 112,000 pounds, far higher than the average UK salary.

Pay is less of an issue at Lloyds since it does not have a large investment banking operation.

Nevertheless, Lloyds has also sought to win over public opinion by cutting bonuses, with many still angry at the fact that the banking industry - blamed for causing the financial crisis - awards itself large payouts while elsewhere thousands lose their jobs in a weakening global economy.

Horta-Osorio declined to take up his bonus after his absence from work and Lloyds has also said it will claw back nearly 1.5 million pounds of a deferred bonus to its former CEO Eric Daniels and four other leading directors, after an insurance mis-selling debacle last year.

Lloyds had to take a 3.2 billion pound provision last year to cover compensation for customers who were wrongly sold payment protection insurance (PPI) policies.

The policies were typically taken out alongside a personal loan or mortgage to cover repayment if the borrower was unable to pay due to unemployment, sickness or accident.

But the policies were often mis-sold to the self-employed or unemployed people who would not have been able to claim.

Last year, Horta-Osorio set out a restructuring plan that would see Lloyds axe 15,000 jobs and halve its international presence.

Lloyds is also in talks over selling some 630 retail bank branches to mutually owned conglomerate The Co-Operative Group.

Lloyds shares closed up 3.3 percent at 36.58 pence on Thursday, still well below the average 63 pence at which the British taxpayer acquired its stake in the bank.

($1 = 0.6369 British pounds)

(Reporting by Sudip Kar-Gupta; Editing by Erica Billingham)