Andrea Orcel, former investment bank president of UBS AG, pauses during the Bloomberg Markets Most Influential Summit in London, U.K. (Photographer: Jason Alden/Bloomberg)

Orcel's Rise to Santander CEO Ruined by Dispute Over UBS Pay

(Bloomberg) -- Banco Santander SA reversed course on installing Andrea Orcel as its next chief executive officer after a standoff over tens of millions of dollars in deferred pay.

UBS Group AG held a hard line that Orcel, who led its investment bank until a few months ago, was defecting to a rival and wouldn’t receive bonuses he was owed from previous years. That meant Santander had to make it up to the Italian executive, who was poised to achieve his career ambition of leading one of the world’s biggest banks.

It wouldn’t be unusual for UBS to take a tough stance to try to dissuade one of its top managers from leaving, but Santander executives wagered that once Orcel was gone, the Swiss bank would relent rather than risk losing it as a client. That backfired -- leaving a retail lender facing the prospect of telling its 200,000 employees it just spent as much as $60 million on their new boss. The Spanish bank chose not to.

“In making this decision we have had to balance the respect we have for all of our stakeholders -- the millions of people, customers and shareholders we serve -- with the very significant cost of hiring one individual, even one as talented as Andrea,” Ana Botin, executive chairman of Santander’s board, said in a statement.

Santander’s shares fell 0.7 percent at 10:58 a.m. in Madrid, while UBS gained 1.2 percent in Zurich trading.

The biggest financial firms are often tangled in complicated relationships that leave them as rivals in one business and clients in another. That can turn moves of top talent between them into delicate negotiations over pay, timing and whom they can take along. The details of this situation were described by people with direct knowledge of the matter, who asked not to be identified talking about private discussions.

Competitor and Client

Santander and UBS are both major corporate lenders throughout Europe, but Santander has a retail banking focus while UBS primarily operates in investment banking and wealth management. Santander officials thought Orcel’s non-compete clause could be waived and his garden leave could be reduced because the two banks aren’t direct competitors in their primary businesses.

UBS has previously waived garden leaves for lower-level executives. William Vereker, who left last year to join U.K. Prime Minister Theresa May as a business envoy, made the switch in less than six months. UBS said that the UK government is not a financial services firm and therefore not a competitor.

Orcel’s deferred compensation subject to negotiation was a range of about 40 million Swiss francs ($40 million) to 50 million francs, people with knowledge of the matter said. One of the people said the total cost could have climbed to as much as $60 million.

“It feels to me like amateur hour,” said Ilana Weinstein, who runs Wall Street recruitment firm IDW Group LLC. “What I don’t understand is why Andrea and Santander didn’t see this coming. I think it was ambitious and potentially naïve to think UBS would just waive it.”

Santander was willing to pay 20 million euros ($23 million) of the total, according to Daragh Quinn, an analyst at Keefe Bruyette & Woods Inc. The Spanish bank said in its statement that the cost of compensating Orcel for past awards would have exceeded the board’s original understanding.

UBS, meanwhile, faces the potential prospect of paying an executive to sit at home and won’t likely be getting a call for Santander’s next investment banking mandate. Orcel doesn’t plan to return to a role at UBS, according to a person with knowledge of the situation.

“This is a matter between Andrea Orcel and Santander,” UBS said in a statement. The Zurich-based bank “applied the compensation plan rules relevant in such cases and made them transparent to all parties before any decisions were made.”

Now, Santander is essentially asking shareholders not to be bothered by the sudden about-face. The lender had announced Orcel’s appointment in September, saying that he would take on the role in “early 2019” following regulatory approval and that he would see through the realization of its strategy. Instead, it said Tuesday, Jose Antonio Alvarez will remain on as CEO of the largest Spanish bank.

Orcel's Rise to Santander CEO Ruined by Dispute Over UBS Pay

Orcel advised generations of Santander leaders, including the late chairman, Emilio Botin, and Ana Botin, who took over from her father in 2014. Still, Orcel faced questions over whether his background in investment banking was best suited for a job leading a 1.4 trillion-euro consumer-facing lender.

“It doesn’t look well-managed -- you don’t name a new CEO and then suddenly say he’s not coming,” said Ricardo Wehrhahn, managing partner at Intral Strategy Execution in Madrid. “His profile was not fully aligned to that of a retail bank like Santander.”

There’s been a sense of residual resentment against banks following Spanish government bailouts in recent years, and hefty compensation packages may not sit well amid a growing populist sentiment in the nation. Botin’s statement mentioned the bank’s “significant responsibilities to the societies in which it operates.”

“They have smart crisis-communications folks,” said Lori Wallach, who studies global trade at Public Citizen in Washington. “Does it surprise me that at this moment an appeal to the public interest and an almost populist-sounding message is deemed the strongest argument to explain a jarring and unexpected turn of events at a bank? Not really.”

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