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Cattles, the doorstep lender, said yesterday that a more stringent approach from the Financial Services Authority had delayed its application to transform itself into a banking group able to take deposits.
The admission by Cattles followed a 25% fall in its share price yesterday on concerns that the City regulator was opposing the application, which is crucial if the lender is to find alternative ways to finance its business.
Cattles needs to be able to attract savers because it obtains all its funding to provide loans from the moribund wholesale market. It needs to refinance £500m of loans, currently arranged through a syndicate led by Royal Bank of Scotland, by June at a time when the financial market conditions are deteriorating.
The firm is already regulated to grant loans but needs a separate licence from the FSA to be able to take deposits. Cattles submitted the application to the regulator in September after raising £200m of fresh funds from its shareholders to comply with the regulator's demands to have a cushion of capital to protect its savers should it run into trouble.
The rights issue at 128p a share was widely supported by its shareholders - at a time when banks such as HBOS and Bradford & Bingley failed to attract backing for fundraisings. But investors who supported the cash call are now sitting on losses as the shares closed at 30p, down 7p.
The lender is due to update the market on its trading next week. Yesterday it said it had "submitted its detailed business plans to the FSA for consideration and is currently dealing with a number of requests for further information".
"Given the current banking environment and market conditions, the FSA is proposing more stringent tests for firms, particularly relating to liquidity and stress testing, on which the FSA has recently issued consultative papers," Cattles said.
It admitted that its application was "proceeding at a slower pace than the company had previously anticipated".
The FSA tries to process applications within three months although this can be extended to six months if it needs to ask for extra information.
The application by Cattles comes at a difficult time for the lending industry. Its rival London Scottish Bank was forced to call in the administrators this month after an 11-month battle for survival. It had already been able to offer savings accounts and Alistair Darling, the chancellor, moved quickly to end any uncertainty about whether all its depositors would be safe following the appointment of Ernst & Young. The chancellor is picking up the bill for any deposits of more than £50,000 held with LSB, which would not have been covered by the financial services compensation scheme.
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