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UBS loses China bond deal after economist's pig remark

The logo of Swiss bank UBS is seen at a branch office in Zurich, Switzerland. (PHOTO: REUTERS/Arnd Wiegmann)

By Cathy Chan

(Bloomberg) -- One of China’s biggest state-owned infrastructure companies excluded UBS Group AG from a bond deal after the bank’s global chief economist sparked a furor with his use of the phrase “Chinese pig.”

China Railway Construction Corp. decided against hiring UBS as a joint global coordinator on a dollar-bond sale, a CRCC spokesman said. The decision was prompted by last week’s pig remark, people familiar with the matter said earlier. UBS declined to comment.

CRCC is the first known corporate issuer to distance itself from UBS over a drama that has captured the attention of financial professionals around the world and threatened to complicate the Swiss firm’s push into Asia’s largest economy. While lost fees from the deal will have a negligible impact on the bank’s bottom line, the signaling effect from a major state-owned company is potentially more concerning for UBS as it tries to prevent the uproar from damaging its investment-banking and wealth-management businesses.

The stakes are high for UBS, which has had a presence in China longer than most Wall Street firms and was the first foreign business to win approval for a majority shareholding in a local securities venture after the country relaxed ownership rules. Most wealth managers still serve China’s rich from offshore centers such as Hong Kong and Singapore, but the nation’s massive pool of onshore money, estimated at around $20 trillion, is a huge prize for the industry.

UBS economist Paul Donovan made the “Chinese pig” comment on Wednesday in an analysis of the country’s swine flu epidemic. He was attempting to explain why the outbreak shouldn’t concern investors eyeing the international inflation outlook.

“Does this matter? It matters if you are a Chinese pig,” Donovan said. “It matters if you like eating pork in China. It does not really matter to the rest of the world. China does not export a lot of food. The only global relevance would be if Chinese inflation influenced politics and other policies.”

Even as many English speakers viewed the phrasing as innocuous, it set off a firestorm on Chinese social media. The comment was also condemned by two Communist Party publications and by trade groups representing Chinese brokerages.

Haitong International Securities Group, which competes against UBS for China-related business, said on Friday that it had suspended its activities with the bank. CRCC opted for Citigroup Inc., HSBC Holdings Plc and ICBC International as joint global coordinators on its bond sale, people familiar with the matter said last week.

Donovan apologized, saying in an interview with Bloomberg Television that he unwittingly used culturally insensitive language. UBS later placed the 47-year-old economist on leave and said it was evaluating whether more steps needed to be taken.

“We apologize unreservedly for any misunderstanding caused by these innocently intended comments,” UBS said in an emailed statement. “We have removed the audio comment from circulation. To be clear, this comment was about inflation and Chinese consumer prices rising, which was driven by higher prices for pork.”

UBS shares fell almost 1% last week, outpacing losses among European peers and extending declines over the past year to 24%.

© 2019 Bloomberg L.P.