Cattles suspends three directors after 'controls breakdown'

The doorstep lender Cattles announced it was entering talks with its banks in an attempt to stay alive yesterday after it uncovered accounting errors while provisioning for bad loans.

Issuing its second profits warning in as many months, the company added that it had suspended three senior directors at its main operating company, Welcome Financial Services.

Shares in Cattles plunged 40 per cent to 3.1p, valuing the company at just £10m, as it said that as a result of the new discoveries its profits will be "substantially" lower.

"Based on work carried out to date, the board believes that there has been a breakdown in internal controls which has resulted in the group's impairment policies having been applied incorrectly," the company said.

"The board anticipates that it will be required to enter into discussions with its banks and the holders of its outstanding Eurobonds and US private placement notes," it added.

Analysts slashed their target price for the company as they priced in the impact of lower profits, management upheaval and a possible debt restructuring. "We estimate there would be zero value left for equity holders after repaying debt in a distressed run-off scenario," analysts at Citigroup said, adding that they now see this outcome as an 80 per cent probability.

The brokers Noble added: "The chances of any value being left for equity holders diminish by the day.... We would continue to urge remaining investors to sell before the equity value moves to zero if such action remains possible."

The discovery of the accounting errors prompted a series of management reshuffles at the lender. Welcome Financial Services' managing director, John Blake, its finance director, Peter Miller, and the operations director, Mick Belcher, have been suspended as an inquiry is conducted by the accountancy firm Deloitte, which as Cattles' internal auditor has also been undertaking the review of loan provisions and unearthed the errors.

The company's chief executive, David Postings, has taken direct control of Welcome Financial Services.

Cattles also said that its finance director, James Corr, who had deferred his retirement pending an outcome to the ongoing investigation, was unable to carry out his duties due to ill health. His nominated successor, Robert East, had taken on his responsibilities.

Cattles was founded in 1927 by Joseph Cattle in Hull. It listed on the London Stock Exchange in 1963, and now operates under three brands. Welcome provides personal loans, Lewis is a debt recovery and investigations business, while Cattles Invoice Finance lends to small and medium-sized businesses.

In January its shares fell sharply after the company failed in its attempt to win a full banking licence. On 20 February, they dived again as Cattles issued a profits warning and said it would put its results announcement on hold as it conducted a review of its bad loans provisions.