Cattles, the sub-prime and doorstep lender, is to tap the markets for another £200 million in an attempt to fund its application for a banking licence and to shore up its balance sheet.

Shares in Cattles rose 7 3/4p after the announcement of the heavily discounted rights issue, through which investors can buy nine shares for every twenty they hold at 128p each.

It is the second time in little more than a year that Cattles has sought extra funding. The company raised £133 million last March through a share placing, which the lender said was to be used to fund expansion.

Cattles said that the latest rights issue would provide the group with the appropriate capital strength to support an application to the Financial Services Authority (FSA) for a banking licence.

The company believes that a banking licence will allow it to draw in about £1 billion of retail savings deposits by the end of 2010.

To obtain a banking licence, the FSA requires a higher level of capital adequacy than Cattles possesses.

Last year Cattles held unsuccessful bid talks with London Scottish Bank, which would have provided it with a banking licence enabling it to take deposits from savers.

The company’s business model is based on making small personal loans to customers with poor credit histories, all sold via a growing branch network and a team of door-to-door salesmen. It has about half a million customers.

Cattles has funded its growth by borrowing in the wholesale markets or issuing bonds. However, these markets worsened significantly in the second half of 2007 after the credit crunch and it said that market conditions had deteriorated further in 2008.

The company insisted that it was making higher margins on its new lending volumes this year and that impairment and arrears ratios were stable.

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