An unfavourable ruling by the Takeover Panel could spark a bitter row. Swiss Bank is believed to be determined to retain its link with Trafalgar, despite the unwritten City constitution that it should unilaterally relinquish its role because Warburg's knowledge of Northern would give it an unfair advantage if Trafalgar renews its takeover bid for the electricity company.
Trafalgar failed with a £1.2bn bid for Northern Electric in March, but is expecting to make a renewed take-over attempt within the next few months. Swiss Bank is believed to have decided to retain its role as Trafalgar advisor on any new bid and to ask SG Warburg to drop Northern to avoid conflict.
The electricity firm, however, will next week ask the Takeover Panel to take a view on the issue.
One industry source said: "It is possible that both banks will be asked to step down."
Northern Electric, which declined to comment, is thought to have received expressions of interest from several merchant banks wishing to fill Warburg's shoes.
There has been speculation that it has approached Morgan Stanley. A spokesman for Northern said there has been no change in the situation.
The Swiss Bank bid for Warburg is the latest twist in a long, drawn-out and bitter battle between Trafalgar and Northern Electric.
A bid for Northern at £11 per share lapsed in March after the industry regulator, Offer, announced a review of electricity distribution prices.
The Takeover Panel then rejected attempts to come back with a £9.50 per share. Trafalgar must wait until next March to bid again, unless it is allowed to do so by the Northern Electric board.
The saga has continued in intervening months, with Northern Electric coming under pressure from some shareholders, led by the US arbitrageur, Wyser-Pratte, to allow a new bid.
The company has now been forced to call an extraordinary general meeting on 2 June to allow shareholders to vote on the whether a £9.50 offer should be allowed to proceed but has asked them to reject the move. Northern's shares were up 1p yesterday at 821p.