A Cattles stampede would feed the sharks

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These are difficult times indeed for Cattles, lender of last resort to low income households unable to borrow anywhere else. The company, which was founded in 1927, has seen a good few downturns and come out the other side intact. But it will need a Houdini-style performance to escape its current predicament.

Yesterday another three executives were suspended, including the finance director, chief operating officer and the chairman of its Welcome offshoot, where loans average £300 and repayments are collected weekly from the borrower's doorstep. A forensic investigation of Welcome's books is under way.

The company also issued its third profit warning in as many weeks, saying it would post a "significant" loss. A few weeks ago the market was expecting a profit of £170m, up from £165m last year (although that figure is now going to be restated too).

Oh, and Cattles has breached its banking covenants, which state it is in automatic breach if it falls to a loss.

This is where it starts to look serious. Cattles has to refinance £500m of debt due to 23 banks - led by RBS - by June. If it can jump that hurdle it has another £135m due to RBS by December. Little wonder its shares are down 99% in the last year.

It has £3bn of loans out to customers and servicing its borrowings means ensuring collection of repayments is maintained. And that is evidently where Cattles problems lie - it has been allowing its cash-strapped borrowers to get 240 days behind with their repayments before the loans are classed as unlikely to ever get repaid. Rivals reckon such loans are unlikely to be repaid after only 30 days.

For Cattles customers the biggest incentive to keep up repayments is the fear of losing their only access to credit. If they get wind of any suggestion the company might not be around much longer, they will stop paying in droves.

But if Cattles disappears where exactly is its clientele supposed to go to get their credit? If their chances of getting a loan from a mainstream bank were previously non-existent, they are now less than that. Loan sharks will be their only option.

Strangely, Cattles reckons so far its repayment rates are not deteriorating. Then again, this is a company that reckoned it was going to make £170m just a few weeks ago - rather than plunge into the red.

Perhaps even more alarming, until last month Cattles had hoped to win a banking licence.

Stalled machines

We hear a lot about "rebalancing" the economy when the recovery eventually comes, so that never again do we rely on pesky bankers and financial salesmen. It's a sort of muck and brass reasoning, that growth based on dirt and toil is better than wealth created by arrogant young men in suits.

If rebalancing is the aim, we need to get on with it and yesterday's industrial production figures showed it will be no easy task. January's 2.6% month-on-month decline (an eye-watering -11.4% year on year) was more than double City forecasts. Manufacturing was down 2.9% (-12.8% year on year). Over the most recent three months, manufacturing tumbled 6.4% - the biggest quarterly decline since records began 41 years ago.

Assuming our factories declined no further in February and March - which Commerzbank analysts describe as "a heroic assumption if ever there was one" - that number alone will wipe 0.8% off GDP growth in the first quarter. The Commerzbank analysts reckon there's a real risk some of the current decline in production will be permanent.

And this at a time when the pound hit its all-time low against the dollar at the end of last year. So much (so far) for industry hauling the economy out of the doldrums, aided by a weak pound.

Don't bank on it

Could this be the time to consider a small wager on buying bank shares?

It looks like it could be if you trust the judgment of hedge fund squillionaire John Paulson, who has bet big and successfully on bank shares, netting at least £400m, on the most conservative of estimates, in the last few months.

He has generated those riches in the UK, in the shares of HBOS, Lloyds and Royal Bank of Scotland. However, he is now closing out positions - his holdings have fallen below the notifiable level. Only Barclays has him holding on.

At the same time, Jonathan Pierce, the highly rated banks analyst at Credit Suisse, announced yesterday that UK banks are "once again investable".

Clearly this remains a market for the brave (or foolhardy) as there is still speculation that more capital will need to be raised at some point - and full scale nationalisation is still on the cards.


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