Cattles, the embattled sub-prime lender, warned shareholders today it would have to write down up to £850 million because of defaulting borrowers in the wake of an external investigation into its accounting scandal.

Unveiling what constitutes a third profits warning, the Cattles board said it had received inaccurate or incomplete information from some of its former management in what was "a breakdown of internal controls".

Six executives, including two Cattles directors, have been suspended pending the completion of an investigation by Deloitte, the accountancy firm, and Freshfields Bruckhaus Deringer, the City law firm. It is understood the police have not been called in.

Cattles said it would need to make a provision of around £700 million for loan impairments in respect of the last two years and possibly earlier. In addition it is considering making an additional impairment provision of £150 million in anticipation of future losses.

The write-downs on the loanbook are on top of £400 million of losses already reported for the half year to June 2008. The group also said it would have to restate its 2007 accounts.

The board said it was "not yet in a position to provide a definitive explanation for the breakdown in internal controls".

Cattles shares have plunged from 340p to 3.4p in the past two years as the full scale of its problems unfolded. It recently abandoned plans to apply for a full banking licence.

The group specialises in lending to poorer people and people with impaired credit histories and had 600,000 customers, mostly through its Welcome Financial Services arm.

The group is now busy appointing fresh management and today announced plans to appoint Jamie Smith, a restructuring partner with one of the big four accountants, as interim finance director. It is also considering disposals and cost-cutting. It generated net cash receipts in the first three months of 2009.

There was no update on the need to refinance £500 million of debt that comes due in July.

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