A financial services group at the centre of takeover speculation for the past seven months highlighted the strain caused by the activity.

The comments from Manchester-based London Scottish Bank came as it emerged that discussions had been held with Birstall-based specialist lender Cattles. The FTSE 250 Index company is one of "various parties" linked to London Scottish in recent months.

London Scottish, worth £150 million, said corporate work stemming from being in an offer period since April resulted in legal and accounting costs of £750,000 in the financial year to the end of October.

In a message to shareholders, Cattles said: "Any offer, if made, would be subject to, inter alia, the necessary regulatory and other conditions typical for an offer in the UK.

"Notwithstanding the above, Cattles reserves the right to make an offer, whether or not in the form of a share exchange offer, prior to the release of London Scottish Bank's results and in advance of the completion of London Scottish Bank's audit work."

Cattles also pointed out that the discussions did not constitute an offer of a takeover and that there were no assurances that an offer was forthcoming.

London Scottish Bank is currently undergoing a restructuring programme. In its last set of results Cattles reported a 13 per cent rise in profits to £46.8 million.

Cattles has carried out extensive due diligence on London Scottish, but added the process had been deferred pending a detailed review of London Scottish's results for the year to October 31.