UPDATE 2-Cattles in 200 mln stg cash call to become a bank

(Writes through with details, analyst comment, CEO)

By Clara Ferreira-Marques

LONDON, April 23 (Reuters) - Cattles is seeking 200 million ($395 million) pounds from shareholders, through a deeply discounted rights issue, so the British subprime lender can win a banking licence and become less reliant on wholesale funding.

Most Cattles (CTT.L: Quote, Profile, Research, Stock Buzz) customers do not have mortgages, so they have remained largely immune to the rising rates squeezing most UK consumers. The group says it has also benefited as mainstream lenders pull back, but has suffered higher wholesale funding costs.

Joining the increasingly competitive race for Britons' savings will help keep funding costs down, Cattles said on Wednesday. It hopes to raise 1 billion pounds by the end of 2010.

"It will diversify our funding sources and will enable us to raise funds at slightly cheaper rates than we are paying the banks," Chief Executive David Postings told Reuters.

"The latest tranche of debt we are raising will be at a margin of 2.5 (percentage points) over Libor -- no one is offering 8 percent at the moment in the retail savings market, so we are very confident we can offer a very attractive rate and still save money."

Cattles shares jumped on news of the rights issue, aimed at boosting its capital base to meet regulatory requirements for banks, but were up just 0.2 percent at 220p by 0900 GMT.

The nine-for-20 rights issue is priced at 128 pence a share and underwritten by Citi (C.N: Quote, Profile, Research, Stock Buzz) and HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz).