Santander’s CEO Debacle Is More Than an Embarrassment

(Bloomberg Opinion) -- Andrea Orcel was never an obvious choice for Banco Santander SA, and the 11th-hour reversal of its decision to name him CEO is more than just an embarrassing blunder for the Spanish lender.

On Tuesday, the bank said Jose Antonio Alvarez — who had been made a vice chairman to make room for the new leader — will continue as CEO. The lender blamed the U-turn on the greater-than-expected cost of compensating Orcel for the $50 million or so of deferred compensation he would forfeit by defecting from his previous employer, UBS Group AG. It’s clear Santander hoped both UBS and Orcel would agree to compromise.

For investors, the debacle raises a question about governance at the bank. It’s not clear how chairman Ana Botin’s star hire came about in the first place, and to what extent the board was fully committed to it.

A veteran rainmaker who has orchestrated some of the world’s biggest banking mergers, Orcel spent the last six years shrinking UBS’s investment bank. There, he worked his staff hard, drawing criticism from those on the receiving end, and praise from peers and supporters. Defying skeptics of his brash management style and those who argue downsizing a securities business is next to impossible, he made a success of it. That whet his appetite to become a CEO one day. Absent a clear path to the No. 1 job at UBS, Santander was his opportunity.

From the outset, his investment banking background made him an unlikely candidate for Santander — a mostly consumer-focused lender with an empire sprawling from Spain to Brazil. Botin’s line that Orcel would lead a push into digitization while keeping the focus on retail and commercial banking did little to convince many observers.

The clue to his appointment lies in his long-standing familiarity with Santander — and the Botin family. Indeed, it’s safe to say he knows more about Santander than many at the bank.

For decades, the Italian financier had served as confidant to the late Emilio Botin. At Goldman Sachs Group Inc. and Merrill Lynch & Co., Orcel had advised on tens of billions of dollars of deals that propelled Santander to become a European giant, now with 1.4 trillion euros ($1.6 trillion) of assets.

Since Ana Botin succeeded her father Emilio upon his death in 2014, the lender has favored organic growth, taming its ambitions while it addresses regulatory demands to bolster capital. Orcel’s move to Santander prompted speculation that the bank would look to mergers to expand once again, particularly in the U.S., where it remains sub-scale.

The offer to Orcel was contingent on the pay negotiations. On the face of it, Santander appears to have miscalculated just how much UBS would be willing to compromise to preserve the two banks’ future relationship.

But even in the most optimistic of scenarios, the hire of a one-of-a-kind investment banker would have set Santander back tens of millions dollars — and risked a popular backlash. It’s questionable how closely the board had weighed the possibility that the negotiations might fail.

Through what is now a small minority stake held by the family, the Botin dynasty has in effect run the bank for over a century. Ana Botin, who cut her teeth at JPMorgan and ran Santander’s U.K. unit, is the fourth generation to oversee the lender. Its history and governance are quite unlike those of any other big European bank. The Orcel debacle is a reason for investors to question it.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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