UBS Loses a Deal in China After Economist’s ‘Pig’ Comment

June 17, 2019, 11:37 AM UTC
University Of Oxford And Its Smith School Of Enterprise And Environment Host ReSource 2012
OXFORD, ENGLAND - JULY 12: Paul Donovan, Global Economist Managing Director at UBS Bank discusses how efficient businesses gain a competitive advantage at the ReSource 2012 conference on July 12, 2012 in Oxford, England. ReSource 2012 is a 2 day ground-breaking forum on resource scarcity and volatility, dedicated to engaging the financial and business community on the issues of food, water, energy supply and global growth. (Photo by Matthew Lloyd/Getty Images for ReSource 2012)
Matthew Lloyd—Getty Images

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.”

The decision by China Railway Construction Corp. marked the first known case of a corporate issuer distancing itself from UBS over last week’s comment by economist Paul Donovan. His quip on the swine flu epidemic led to a public uproar in China even as some on Wall Street said the reaction was overblown.

While lost fees from the deal will have a negligible impact on UBS’s bottom line, the signaling effect from a major state-owned company is potentially more worrisome for the Swiss bank as it tries to prevent the drama from damaging its investment-banking and wealth-management businesses.

The stakes are high for UBS, which has had a presence in China longer than many of its peers and was the first foreign business to win approval for a majority shareholding in a local securities venture under 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 declined to comment on the CRCC deal.

Donovan made the “Chinese pig” comment on Wednesday as he attempted to explain why the country’s swine flu 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 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 decided against hiring UBS as a joint global coordinator on a dollar-bond sale, a spokesman for the Beijing-based company said on Monday. The decision was prompted by the pig comment, people familiar with the matter said. CRCC gave the mandate to banks including Citigroup Inc., HSBC Holdings Plc and ICBC International.

Donovan apologized for his remark last week, 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%. The stock rose 1% at 10:46 a.m. London time on Monday.

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