The government’s UK Financial Investments arm will sell 6% of the bank’s issued share capital, equivalent to 4.2bn shares, to institutional investors. Retail investors are expected to be able to buy shares when the next round of stock is sold.

Bank of America Merrill Lynch, JPMorgan and UBS will manage the share sale.

Lloyds shares have risen 93% over the last 12 months to trade at 77.36p. Rumours of an imminent sale have helped push the shares higher in recent weeks.

The government will profit from the sale given today’s values, according to some metrics – it paid between 60p and 73.6p per share during the rescue in 2008.

Some £20bn of taxpayers’ cash was pumped into the failing bank during the financial crisis. The share sale will take the government’s stake in Lloyds down to 32.7%.

Insiders had predicted the government would sell up to a quarter of its stake in the first placing. Today’s announcement is equivalent to a fifth of its holding.