Lehman Brothers, the US investment bank, has dropped out of talks to buy Cazenove, the independent investment bank, after failing to agree on a valuation. Lehman had tabled an offer worth about £800m (€1.2bn).

According to banking sources, talks ended "very, very recently", with Cazenove's value the only stumbling block. Senior investment banking sources told Financial News Online late on Tuesday that they believed the bank was preparing to walk away from the deal.