Cattles, the troubled sub-prime lending company has announced it will have to
put aside an additional £850m to cover customers defaulting on debts.
The company believes a ‘breakdown in internal controls’ at its Welcome
Financial Services arm meant its impairment policies had been applied
incorrectly, leading to the underprovisioning for bad debtors.
Six senior executives of the group, including group FD James Corr and
divisional FD Peter Miller remain suspended pending the final outcome of a probe
by internal auditors Deloitte and law firm Freshfields Bruckhaus Deringer.
Jamie Smith, a former Deloitte transaction and reorganisation services
partner, will be parachuted in as interim FD, subject to approval from the
Financial Services Authority.
Cattles said in a statement today: ‘The Deloitte report estimates that the
group will need to make a provision of around £700m in excess of that originally
anticipated with respect to the value of customer loans held as at 31 December,
‘The Board is also considering whether to include an additional Incurred But
Not Reported provision consistent with accounting standard IAS39.
‘Based on work carried out to date, the Board believes that the adoption of
such a policy would result in an IBNR impairment provision of approximately
£150m with respect to the value of customer loans held as at 31 December, 2008.’
In order for the breakdown in internal controls to have occurred, Cattles
said, and for the extent of underprovisioning to have remained unrecognised
(despite specific and repeated questioning by members of the board as part of
its monitoring of the group’s credit risk position) the board believed that it
had received inaccurate and/or incomplete information.
The release of Cattles annual report has been shelved until its issues have
Cattles expects to report a significant loss before tax for the year ended 31
December, 2008 and in the requirement to restate the Group’s financial
statements for the year ended 31 December, 2007, it said.
‘It is possible that such a restatement of the 2007 financial statements
could result in a significant reduction in previously reported profit before tax
for that year. The impact on the Group’s financial statements for earlier years
is still being considered.’
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