Sources close to the former discount house said a deal had been in the offing for a while, following a long slide in Cater's share price since it peaked at 630p at the beginning of 1994. The identity of the bidder remains under wraps, but analysts said yesterday it was probably a British bank keen to buy Cater's knowledge of the high-volume, low-margin short- term money markets.
With a net asset value of 340p, any bid is thought unlikely to exceed about 600p a share. Market speculation yesterday focused on Close Brothers or Schwab, although neither was thought to be able to provide the balance sheet strength that was probably the attraction of any deal to Cater. The bank has made it clear that discussions are over a recommended bid.
A takeover would put an end to Cater Allen's transformation from old- style discount house to a specialist small bank engaged in a variety of disciplines. The bank's interests range from execution-only stockbroker City Deal, which offers small investors trades as cheaply as pounds 9 a deal, to retail banking and fund management.
The main thrust of Cater's expansion has been out of wholesale and into retail financial operations, where James Barclay, the bank's chairman, recently said it was going "flat out". Like many banks, Cater has been keen to expand its fund management operations, which in the past decade have provided steadier profits than more volatile broking activities.
Cater Allen has struggled in recent months. Last November it announced a 40 per cent slide in pre-tax profits for the half year to October to pounds 5.6m. Mr Barclay blamed a wrong call on the previous month's interest rate rise and said sterling money markets had been the toughest in years.
Its execution-only stockbroking business had also suffered from the introduction of Crest, the electronic share settlement system, which pushed it into the red last summer. It had, however, been popular with investors, winning awards for its service and pulling in up to 1,000 new clients a week for its no-frills stockbroking offer.
A bid for Cater Allen would be the latest in a string of deals which have pushed almost all the City's independent banks into the hands of well-heeled institutions, mainly foreign banks. Venerable City names such as SG Warburg and Kleinwort Benson have fallen to European buyers, leaving only a handful of independent players.