Investors yesterday obliterated almost half the stock value of Cattles after the UK sub-prime lender said it had discovered an internal audit error and that its debt charges were now likely to be higher than first thought.

Shares in the company, which serves individuals who do not have access to mainstream lending, tumbled 47%, or 2.125p, to 3.125p.

Cattles, which operates as Welcome Finance, also said it had it suspended three director as a result of the error and added that it believed a "breakdown in internal controls" had led to its impairment policies being applied incorrectly.

As a result of a review being carried out by Deloitte, Cattles said 2008 profits were likely to be substantially lower than its expectations on February 20, when it first warned of potential problems with bad-debt provisions.

The second profits warn-ing in a fortnight caused investors to stampede from the stock, and the company also warned that the situation would likely require it to enter into talks with its banks and bond- holders, while brokers at Numis fear the firm will breach its banking covenants.

Cattles chief executive David Postings has now taken direct control of Welcome Financial Services.

However, the company said John Blake, managing director, Peter Miller, finance director, and Mick Belcher, operations director of Welcome Financial Services, have been suspended pending the outcome of a separate inquiry, which is also being conducted by Deloitte.

Cattles annual results, which were scheduled for release last week, have been delayed pending the review of its impairment policies.

It is the latest blow to the company, which last month conceded defeat in its long-running attempt to secure a licence for banking deposits.

Cattles, which is based in Batley, West Yorkshire, also said recently it was axing 1000 jobs, as it shrinks the business in line with reduced business volumes.

The company is scheduled to provide a progress report by the end of the first quarter of this year.

l Shares in rival subprime lender Provident Financial rose 13p to 803p after the firm posted an 11.8% hike in pre-tax profits to £128.8m for 2008, gaining mostly from its door-to- door loan collection business.

Analysts at Noble said in a research note: "Today's results highlight the robustness of Provident Financial's business model. Bad debts in home collected credit division and Vanquis have remained stable.

"With London Scottish Bank going into admini-stration and Cattles on the verge of administration, competition has completely disappeared."