More woe for Cattles on Tuesday: the sub-prime lender posted its third profit warning in three weeks and announced that it had suspended another three of its senior execs over possible accounting irregularities. Its books are clearly in a mess: it's now going to have to restate its 2007 financial results (when it supposedly recorded pre-tax profits of £165m), and it’s forecasting a 'significant loss' for 2008. Oh, and it's also breached its banking covenants, which could lead its own lenders to demand immediate repayment of their loans. As a result, the company's whole future - and that of its 4,000 staff - is at risk. Not exactly the kind of story that will restore the City's good name...
Cattles’ woes are not entirely surprising: its business model involves borrowing money on the wholesale market and then lending it to people with poor credit histories. So it could hardly have been in a worse position as the housing and credit markets deteriorated. It looks like a classic top-of-the-market business: it grew rapidly in 2006 and 2007, as the high street banks started to get a bit nervous about sub-prime lending, but is now suffering as growing numbers of its cash-strapped customers default on their loans. Fancy that...
But it’s not just the business model that’s the problem. The beleaguered group said today that the group’s FD, along with the chairman and the risk director of its Welcome Financial lending division (which brings in most of Cattles’ revenue) have all been suspended, pending a ‘forensic review’ of how impairment charges were being applied. Following on from the suspension of Welcome’s MD, FD and operations director last week, this means the division’s entire management team is now under a cloud.
For Cattles, the end result is another profit warning and a breach of the terms on its bank loans – it’ll now be forced to go cap-in-hand to its bankers to ask for some breathing space while it gets its house in order. It looks as though its credit rating will soon be as chequered as most of its customers. It's also seen another 14% wiped off its share price today, having already lost about 99% of its market value this year. Ouch.
It’s an episode that may fatally damage Cattles’ reputation, and it won’t do much for the City’s either – lots of people are already convinced the Square Mile is full of crooks, and episodes like this will do nothing to disabuse them of that notion...
In today's bulletin:
Government stumps up £27m for Jaguar Land Rover
Toyota puts the brakes on pay and production
Roger Parry: Where Johnston Press went wrong
City suffers from Cattles' offal year
Do it right: Seven ways to clinch deals in a downturn