Some sort of fatal, neurodegenerative disease seems to have taken hold at Cattles, evidenced by spongy degeneration of reporting systems and management accounts.
Shares in this British doorstep lender plunged on Tuesday following an admission that there has been a complete breakdown in internal controls.
The review of the Group’s impairment provisions, which is being conducted by Deloitte, the Group’s internal auditors, continues. 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. Although it is still not possible to quantify the effect on the Group’s financial statements, the Board believes that profit before tax for the year ended 31 December, 2008 is likely to be substantially lower than its expectations as at 20 February 2009.
In response the company has suspended management at Welcome Financial Services, its main business, and started talks with its lenders.
But as Cattles has to repay £500m of debt in July and a further £135m in December, this diseased animal really does look as if it is heading to the slaughterhouse.
According to James Hamilton of Numis Securities, the problems at Cattles can be traced to accounting policies that allowed the group to have loans 240 days in arrears before any impairment was taken to the P&L.
Add to this policy a typical dynamic delinquency curve which suggests that very few loans go into arrears in the first six to nine months and it becomes clear that the rapid growth of 2006 and 2007 would drive impairment in H2 2008 and through 2009. If you are growing rapidly you can run from impairment but you can not hide.
One question lingers here. Why, in heavens, is it only now — 20 months into the credit crisis — that someone has actually taken a rigorous look at this subprime lender?
Auditors, regulators, noddies…
Hello?
Related links:
To the slaughterhouse… – FT Alphaville
No Money for the poor… – FT Alphaville