Lloyds Banking Group will list its subsidiary, TSB, on the London Stock Exchange, offering a quarter of the company’s shares to the public in the first tranche next month.
The remaining shares will have to be sold by the end of 2015. The business is expected to be valued at around £1.5bn.
To encourage smaller shareholders to take part, Lloyds is offering a free share for every 20 that are held for more than a year.
The European Commission is forcing Lloyds to dispose of the business under state aid rules after the bank was bailed out by the Government during the financial crisis in 2008.
The Co-operative Bank had been keen to acquire 631 branches from Lloyds but had to pull out of the deal last year after revealing it had a £1.5bn capital shortfall.
Lloyds Banking Group chief executive António Horta-Osório says the IPO is an “important further step” toward meeting the EC’s requirements.
He says: “TSB has a national network of branches, a strong balance sheet and significant economic protection against legacy issues.
“It is already operating on the UK high street and is proving to be a strong and effective challenger, further enhancing competition in the UK banking sector.”
TSB has 631 branches and 4.5 million customers in the UK, which Lloyds says makes it the seventh-largest retail bank network in the country.
TSB Banking chief executive Paul Pester says the float is a milestone on the road to making TSB a “competitive force” in British banking.
He adds: “As we prepare for life as an independent, listed entity, we are aiming to deliver strong, steady and sustainable growth over the long term.”
The float is underwritten by Citigroup, JP Morgan Cazenove, UBS, Investec Bank, Numis Securities and RBC Europe.