Ailing subprime lender Cattles today said it is likely to have to treble its level of writedowns on bad loans from £400 million to more than £1.25 billion, wiping out any profit.

The writedowns are a huge proportion of the £3.6 billion of outstanding loans which Cattles said were receivable on 30 June last year.

The firm, which offers personal unsecured loans and second-hand car financing to some 550,000 customers, has issued three profit warnings since it called independent investigators to examine its loan books in February.

Today it said that forensic accountants Deloitte and lawyers Freshfields had finished a draft report which found “a breakdown of internal controls” and that this has now been delivered to Cattles external auditors PricewaterhouseCoopers.

Six senior executives, including two Cattles board members, remain suspended over the affair. And today the company made its strongest allegation yet against them.

It said: “In order for the breakdown in internal controls to have occurred, and for the extent of underprovisioning to have remained unrecognised (despite specific and repeated questioning by members of the board as part of its monitoring of the group's risk position) the board believes that the board as a whole received inaccurate and/or incomplete information.”

Cattles customers have unsecured loans averaging £2300 each or car hire purchases averaging £9800.

The firm breached its banking covenants several weeks ago and today said it was “working closely” with its banks led by Royal Bank of Scotland and with a committee representing its bondholders. Cattles has £500 million of debt falling due in July and £153 million in December.

Chief executive David Postings took direct control of Welcome Finance last month and said he has implemented key actions to try and rescue the business.

These include new management, considering the sale of business and assets, a controlled process of debt recovery and cash collection and simplification of the operating model to reduce costs. Cattles made 1000 call centre and headquarters staff redundant earlier this year.

Today it appointed Jamie Smith as its interim finance directors. He was formerly a restructuring partner at accountancy giant Deloittes. Smith is the third person to be appointed to the role this year.

Cattles said the report on the level of provisioning had now cleared the way for PricewaterhouseCoopers to carry out its audit on the 2008 financial results.

But there is still work to be done deciding exactly where the new provisions will be taken. £800 million of them relate to actual bad debts in 2008, 2007 and possibly earlier years. This will almost certainly mean that 2007's profit of £165 million will be substantially reduced while 2008 will show “a significant loss”.

A further £150 million provision is likely to be made under a new accounting standard which recognises “incurred but not recognised” impairments based on management's view of the business in a worsening economic climate.

Less than a year ago Cattles raised £200 million through a rights issue at 128p a share. Since then the shares have plummeted to just 3.13p.