British subprime lender Cattles said today that it will cut 20 per cent of its workforce and cut costs in order to preserve capital as uncertainty over its funding situation continues.
The company, which is in talks with banks over the refinancing of its facilities - due for repayment in July - and the FSA regarding a banking licence application, said it will close its operations in Hull and is looking to make a reduction of 1000 jobs in total.
"We have not taken these decisions lightly and we firmly believe that by cutting costs and preserving capital in the business we can continue to trade profitably, weather the current economic conditions," chief executive David Postings said.
Cattles, which lends to people who cannot get credit from mainstream banks, said it will cut new business volumes at its main lending business, Welcome Finance, by 75 percent in 2009, compared to 2008.
It added that the reduction in business "will have a negative impact on profitability in 2009". However, it said it remains on track to meet its full-year 2008 targets. The lender is targeting annualised savings of £40 million, at an estimated cost of £20 million.
Shares sunk over 10 per cent on the news, down 4.24 per cent at 28.25 pence at 8.45am, after rebounding in recent weeks from a record low of 11 pence in December. Shares in the company lost 98 per cent of their value in 2008.
The measures announced today follow a decision before Christmas to cut its final dividend in order to strengthen its capital reserves, potentially helping its efforts to obtain a new banking licence from the Financial Services Authority.
Cattles said in December that the application process would take longer than expected because of more rigorous procedures introduced by the FSA, prompting a sharp fall in its share price.
The moves could also strengthen its position in talks to renew a £500 million loan that falls due in July. "Cattles faces a multitude of headwinds," Ian Poulter, equities analyst at Teathers, said in a research note.
"There is still value in the business on that basis. However, getting hold of it may be difficult until there is more information on funding in particular," he added.
Reuters