(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,” people familiar with the matter said.
China Railway Construction Corp. decided against hiring UBS as a joint global coordinator on a dollar-bond sale because of last week’s pig remark, the people said, asking not to be identified because the information is private.
CRCC is the first known corporate issuer to distance itself from UBS over a drama that has captivated financial professionals around the world and threatened to complicate the Swiss bank’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 as UBS tries to prevent the uproar from damaging its investment-banking and wealth-management businesses.
UBS declined to comment, while CRCC didn’t have an immediate comment. The Beijing-based company hired Citigroup Inc., HSBC Holdings Plc and ICBC International as joint global coordinators for the bond sale, people familiar with the matter said last week.
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. While most wealth managers still serve China’s rich from offshore centers such as Hong Kong and Singapore, the nation’s massive pool of onshore money, estimated at around $20 trillion, is a huge prize for the industry.
The “Chinese pig” comment by London-based economist Paul Donovan, which appeared on Wednesday in his analysis of the country’s swine flu epidemic, was interpreted as insulting by China’s state-owned media and prompted at least one of UBS’s rivals, Haitong International Securities Group, to cut business ties.
The controversy stemmed from Donovan’s attempt to explain why the swine flu outbreak shouldn’t concern investors eyeing the international inflation outlook.
“Does this matter? It matters if you are a Chinese pig,” the economist 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, which competes against UBS for China-related business, said on Friday that it had suspended its activities with the bank.
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%.
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