Cattles faces £850m bill to fix accounts

Updated: 04:39 EST, 1 April 2009

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Troubled sub-prime lender Cattles faces a bill for £850million ($1.2billion) - or more than seven times its 2007 net profit - to plug holes in its accounts.

Cattles, whose shares have lost three quarters of their value since the lender revealed accounting errors in February, said on Wednesday that the preliminary results of a forensic probe by auditors confirmed it faced significant losses.

The company, which has already suspended six senior executives including its finance director, said a draft report showed it would have to find £700million to make up for the fact it did not set aside enough funds to cover bad loans.

Shares in Cattles were down 8.4% at 3.15 pence by 0707 GMT

A provision of £150million may also have to be made if Cattles decides to adopt accounting standard IAS39 which governs the way companies measure financial assets and liabilities.

'The board continues to believe that such a provision will result in the group reporting a significant loss before tax for the year ended 31 December, 2008,' the company said in a statement.

A restatement of 2007 accounts could result in a significant reduction in pretax profit for that year while the financial impact in previous years was still being considered, Cattles said.

The company made a net profit of £114.7million in 2007 and its market value is now less than £20million after its shares slid from more than 400 pence a share in early 2007 to less than 4 pence.

'The board is not yet in a position to provide a definitive explanation for the breakdown in internal controls which resulted in the group's impairment policies being applied incorrectly,' the company said.

Shares in Cattles were down 8.4 per cent at 3.15 pence by 0707 GMT.

Cattles said it remained in talks with its banks and bondholders to find a way to stabilise the company's financial position.

The company has appointed Jamie Smith as interim finance director and said it had generated net cash in the first three months of 2009 after 'good progress' with collections.