Singer & Friedlander, the investment bank, is in takeover discussions with Kaupthing, the Icelandic bank.
The group confirmed it was in early bid talks following a steep share price rise on Friday morning. Singer's shares closed up 15 per cent to 322p, valuing the company at ?553m.
The shares have outperformed the FTSE All-Share by 85 per cent since hitting their low in March 2003.
Kaupthing has been thought to be a suitor of Singer since it bought a 6 per cent tranche of shares in the bank in the autumn of 2003 at about 180p.
The Icelandic bank, which manages more than ?17bn (?12bn) in assets, raised its stake to 19.5 per cent a year ago and has stated its ambition to expand into Scandinavia and gain a broker and banking licence in the UK.
A year ago it bought FIH, the Danish bank, for ?1bn. In October it raised more than ?500m through a new share issue. In January it beefed up its London acquisition team, saying it has accrued ?1bn for potential acquisitions. It has also backed a bid by Baugur, a fellow Icelandic company, for the Big Food Group.
Meanwhile, Kaupthing has been building a working relationship with Singer. The UK bank, which last month reported a 40 per cent rise in operating profits of ?30.8m for 2004, regularly brings Kaupthing in on loans above ?10m.
Singer said on Friday that the discussions with Kaupthing were at an early stage.
One analyst said an offer price of 390p was possible. However, Katrina Preston, analyst at Bridgewell Securities, said: "Any bidder would need to be confident that it could materially enhance Singer's profitability in order to justify a valuation much above 250p."