Cattles sheds jobs despite rise in demand

Sub-prime lender hit by delay in licence application

Cattles, the sub-prime lender, said yesterday that doubts about funding had forced it to slash lending and cut 1,000 jobs even though demand for its business was growing.

The company said a combination of banks reining in credit and the Financial Services Authority's (FSA) delay in deciding on its banking licence application meant it would have to cut personal lending by 75 per cent this year, putting strain on households who rely on its short-term loans.

The plan to cut 20 per cent of the workforce includes shutting the 400-strong operation in Hull, where Cattles was founded in 1927, as part of a bid to save £40m a year. Cattles' job cuts come on top of 408 reductions announced yesterday by Barclays, mainly in Cheshire and London.

David Postings, Cattles' chief executive, said: "We have got a vibrant, profitable, growing business and we are having to reduce some of our infrastructure when we should be continuing to grow. Because we are doing 75 per cent less lending than in 2008 we have to reduce our workforce at a time when the Government is requiring banks to move back to 2007 lending levels, which were higher than 2008."

Cattles raised £209m in a rights issue last summer to boost its capital strength as it tried to get a banking licence that would allow it to replace scarce, expensive wholesale funding with retail deposits. The lender had hoped to start taking deposits as early as last year but the FSA has imposed more stringent requirements on its application following last autumn's banking crisis. The company is also trying to agree refinancing of £500m of bank loans, due to be repaid in July, with a syndicate led by RBS. Mr Postings said some of the banks in the syndicate were foreign institutions that were pulling back from lending in the UK because of the financial crisis.

The company's shares fell 17 per cent to 24.5p but were above the all-time low of 10.5p reached on 22 December after the company cancelled its final dividend.

Cattles typically lends about £3,000 to people earning up to £25,000 a year who cannot get credit from mainstream banks. Most of its loans are made from the 183 branches of its Welcome Finance business, some of which may be shut.

The company is hoping to update the market on its banking licence, wholesale funding or both by the end of the first quarter and expects to make a profit this year. "We might be able to access more funding in the wholesale market; we might get our banking licence. The problem is I can't take the risk," said Mr Postings.

Citi analysts said: "Cattles is sending a clear message to the market that it will take whatever unpleasant steps are necessary to maintain the business as a going concern – albeit one of reduced size."