Andrea Orcel’s Arrival at Santander Fuels Speculation of Deals to Come

(Bloomberg) -- Banco Santander SA’s announcement jolted the industry just as London markets were closing. Andrea Orcel, the head of investment banking at UBS Group AG, was defecting from Switzerland’s global financial hub to a campus outside Madrid, becoming the Spanish lender’s chief executive officer.

Orcel’s ambition to be the CEO of a top-tier bank was hardly secret in recent years. But Santander? An institution driven by checking accounts, branches and banking apps?

Andrea Orcel’s Arrival at Santander Fuels Speculation of Deals to Come

Orcel made his reputation as a dealmaker who helped banking CEOs build empires in the pre-crash era. Indeed, one of his best clients was Emilio Botin, who transformed Santander from a regional lender few outside northern Spain had heard of into an intercontinental powerhouse that rolled up dozens of acquisitions in Mexico, Brazil, Chile, Poland, the U.K. and U.S. But investment banking has long been an afterthought at Santander. Why would Orcel, the debonair Italian financier and Davos fixture, take up residence there?

Market players immediately started speculating that his hire showed that Ana Botin, Santander’s executive chairman since 2014, may be ready to follow in her father’s footsteps and execute some deals of her own. The surprise move and Orcel’s M&A background is “likely to create lots of noise” before the bank presents its next business plan in early 2019, Andrea Unzueta, an equity analyst with Credit Suisse Group AG, wrote in a note to clients after the news broke.

Early Trading

Santander shares fluctuated between gains and losses in early Madrid trading and was 0.3 percent higher as of 12:36. p.m., while UBS was 0.3 percent lower after earlier declining as much as 1.6 percent in Zurich.

Other longtime Santander watchers suggested it may have less to do with takeovers than something equally transformative: building out a more robust investment banking and capital markets franchise to diversify the lender.

Retail banking just can’t produce enough growth to excite investors, said Mauro Guillen, a professor of management and international relations at the University of Pennsylvania’s Wharton School, who wrote a history of Santander. While the bank is the largest in the euro zone by market value -- and last year’s most profitable -- its shares have dropped 46 percent during Ana Botin’s four-year tenure.

“One possible interpretation is that they want the bank to move in a different direction, toward higher value-added parts of the banking business,” Guillen said. “My interpretation would be: ‘Let’s look for higher-margin businesses, not only in investment banking but also in advisory and wealth management.”’

In a statement, Orcel suggested big changes may be coming to the Spanish lender. The transformation of financial services “continues at an accelerated pace with increasing headwinds and disruption,” the 55-year-old said. “Rather than fight those challenges, winning organizations embrace them, are energized by them and turn them to their advantage.” The bank said Orcel would start in early 2019.

If acquisitions are in Santander’s future, it could prove pivotal to its U.S. arm, which is trying to move beyond past problems. Santander Holdings USA comprises a retail bank concentrated in the Northeast and a subprime auto finance arm. The Federal Reserve, citing weak internal controls, flunked the U.S. unit in its annual stress tests from 2014 to 2016 before passing it last year. With a clean bill of health, it could purchase other lenders.

Botin History

Orcel’s relationship with Santander stretches back two decades. Among the key transactions he brokered while at Bank of America’s Merrill Lynch was the acquisition of Banespa in 2000, allowing Santander’s Brazilian unit to grow and become the parent firm’s biggest source of income. He was also involved in the purchase of Abbey National in 2004, giving Santander a foothold in the U.K.

In 2007, Orcel worked with Emilio on one of the most troubled banking deals in history. As part of the three-way, 73 billion-euro takeover of ABN Amro, the Spaniard walked away with the Dutch giant’s Brazilian unit, Banco Real, and its Italian subsidiary, Banca Antonveneta. Banco Real made Santander a major lender in South America’s biggest market. But Emilio quickly sold Antonveneta to Banca Monte dei Paschi di Siena SpA for 9 billion euros after it had been valued at 6.6 billion euros. Orcel advised Paschi on the purchase, meaning that within days he had worked on two sides of the complex transaction.

As it turned out, Antonveneta’s loan book was rife with bad debt. It crippled Monte Paschi, setting in motion a chain of events that would eventually result in the bank’s failure and state-backed rescue in 2017.

“Andrea Orcel’s international experience and strategic expertise further strengthen our existing team, helping ensure we continue delivering on our current strategy,” Ana Botin, 57, said in a statement. “Andrea has worked closely with us for the past two decades, in the development and execution of our strategy, and understands and is aligned with the Santander culture.”

Theoretical Successor

When Ana Botin succeeded her late father in September 2014, she preached the gospel of organic growth and said the era of dealmaking was long past. She remodeled branches in Spain as iPad-filled lounges with giant video screens and invested in fintech startups such as Ripple, which uses blockchain-inspired technology to make cross-border payments.

However, in June 2017, Botin made a decision to absorb a troubled rival, Banco Popular Espanol SA, after European Union regulators deemed it likely to fail. The acquisition, executed for 1 euro, brought Santander 4 million customers and 34 billion euros in performing loans. But it also saddled the bank with 37 billion euros in defaulted and delinquent debt. Within two months, Botin sold a majority of the bad-loan portfolio to Blackstone Group LP, the New York private equity firm.

Deals aside, there may be another angle to Orcel’s move: succession. Botin has made no indication that she’s thinking of departing, but if she did decide to let go of the executive part of her title and settle into a more traditional chairman role, Orcel could be a logical choice to take on more power.

“I would think institutional investors would be just fine with that move,” said Donald Lawrence, a finance professor at University College London.

©2018 Bloomberg L.P.