By Max Colchester 

LONDON--The U.K. government on Wednesday announced that it would sell a further chunk of shares in Lloyds Banking Group PLC by the end of June next year.

Morgan Stanley has been mandated by the U.K. government to sell the shares at above the average price the taxpayers paid to bail out the bank during the financial crisis.

The government currently holds a 25% stake in Lloyds. The number of shares sold under the plan will depend on how the share price performs between now and the end of June. There is no definitive target, but Morgan Stanley has been instructed not to sell more than 15% of the volume of all Lloyds shares traded on the market.

Based on past trading patterns this could see around GBP3 billion ($4.72 billion) of stock sold, which would take the government's shareholding in Lloyds down to 20%, according to a person familiar with the matter.

U.K. Financial Investments Ltd, which manages the stake in the bank of the government's behalf, decided to mandate Morgan Stanley a day after Lloyds passed a Bank of England's balance sheet stress test. Previously UKFI has sold chunks of Lloyds directly to investors through accelerated placements however officials felt that it would be better to sell the stock over a longer time frame to a wider group of investors, according to people familiar with the sale. Furthermore the British political calendar is busy ahead of next year's general election, offering few windows for a major sale.

Morgan Stanley has previously worked on selling down the U.S. Treasury Department's stake in Citigroup Inc. The U.S. taxpayer stake in car maker General Motors was sold in a similar manner.

The U.K. government bailed out Lloyds in 2009 following its shotgun merger with a teetering mortgage lender, taking a 39% stake in the U.K.'s biggest retail bank. So far, the government has raised GBP7.4 billion selling bits of its stake in the British bank. The U.K. government currently owns 17.8 billion ordinary shares in Lloyds.

Tapan Panchal contributed to this article.

Write to Max Colchester at max.colchester@wsj.com

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