Development Bank of Wales 'conflict of interest' over English arm

Wales' new business bank cannot turn down requests for loans from English firms on the grounds it would damage a Welsh firm, AMs have been told.

Part of the bank, FW Capital, offers support for companies in England.

FW Capital manages Northern Powerhouse funds, UK ministers' initiative to boost the north of England's economy.

Plaid Cymru said the Development Bank of Wales has a "clear conflict of interest". The bank said the operations had helped attract more firms to Wales.

There was criticism last year when it was announced that FW Capital would be bidding to manage part of a £400m fund for firms in the north of England.

FW Capital, which has had a team of fund managers operating in the north west and north east of England since 2010, had said any profit it makes in England would help cover Finance Wales's overheads back in Wales.

The development bank took over the operations of Finance Wales last week.

Bank officials Michael Owen and Giles Thorley giving evidence on Wednesday

At the assembly economy committee Mr Price asked whether the "potential adverse impact of an investment to an English business through FW Capital" would be a "material factor that would weigh upon a decision".

Michael Owen, group investment director, of the development bank, replied: "We couldn't, because we have an obligation to the British business bank who administer those funds who have make the investment decision".

Chief executive Giles Thorley added: "No business should be afraid of competition and all businesses should be prepared to deal with competition in a normal market".

Earlier another official, Gareth Bullock, suggested investments in northern England would "feed into the Welsh economy".

Adam Price said it was a "staggering admission"

"This is a staggering admission by representatives of the Welsh Development Bank which highlights a clear conflict of interest," said Mr Price, following the meeting.

"The Labour Welsh government were warned against this in expert advice outlined in Professor Dylan Jones-Evans's Access to Finance Review, where he warned that the bank should not manage funds based in England in order to avoid this conflict of interest.

"Because of the Labour cabinet secretary for the economy's stubborn refusal to heed this advice, we are now in a perverse situation where our own state-owned Welsh Development Bank, by its own admission, will have no choice other than to actively work against the interests of those Welsh companies it is ostensibly meant to serve."

'Hypothetical'

A spokesperson from the Development Bank of Wales said: "Plaid Cymru's claims refer to investments made by FW Capital. These are funded by the British Business Bank and are operated entirely separately to those made by the Development Bank of Wales."

The spokesperson said FW Capital had "generated more than £2.5m in profit and contributing to the operational costs of Finance Wales".

"One million of this profit will be used to invest in and support more Welsh businesses in the first year of the Development Bank of Wales.

"Far from the hypothetical scenario proposed by Plaid Cymru, we have found the opposite to be true. Having fund management operations in other regions has been of benefit in attracting more businesses to Wales."