Banco Santander SA's reversal over the appointment of UBS Group AG investment banking chief Andrea Orcel as CEO sends a confusing message about its strategy, and the bank is likely to face questions from investors and shareholders when it reports its fourth-quarter earnings at the end of January, according to analysts.
Santander named Orcel its new CEO on Sept. 25, building on its close ties with the investment banker who has worked with the Spanish lender's founding Botín family for two decades. But on Jan. 15, the Spanish lender announced an abrupt U-turn, saying it would not be offering the top job to Orcel after all because the final cost of hiring the investment banker was higher than expected.
"It has now become clear that the cost to Santander of compensating Mr. Orcel for the deferred awards he has earned over the past seven years, and other benefits previously awarded to him, would be a sum significantly above the Board's original expectations at the time of the appointment," Santander said in a statement. The bank did not specify how much Orcel's appointment would have cost, but the Financial Times put the figure at €50 million.
UBS would not be drawn on questions relating to Orcel's share award or about his future.
"This is a matter between Andrea Orcel and Santander. UBS applied the compensation plan rules relevant in such cases and made them transparent to all parties before any decisions were made," a bank spokesman said.
Orcel's appointment had taken the market by surprise because his background is in investment banking as opposed to retail, which is Santander's main area of business. While at Merrill Lynch International Inc. he advised Emilio Botín, father of the current Executive Chairman Ana Botín, on deals that transformed Santander and helped it expand across the globe to Brazil, Mexico, Poland, the U.K. and the U.S. His appointment led to speculation that Santander would be seeking more acquisitions. But the bank's decision to go back on its offer has also led market watchers to ask for answers.
Confusion over strategy
Javier Santacruz, an economist at the Instituto de Estudios Bursátiles in Madrid who specializes in the Spanish banking sector, said in an interview with S&P Global Market Intelligence that Santander had sent a message to the market that it wanted to expand in investment banking by hiring Orcel.
"If you are sending the message that 'I am changing the business model to take the opportunity to do investment banking instead of commercial, retail and other activities,' why now are you explaining the contrary?" he asked. It raises the question of if the bank is now planning to refocus on commercial banking and if it is in fact looking for someone else to take the CEO position, he said.
"This is not a clear message from Santander. It is a confusing message."
Santander said current CEO José Antonio Álvarez, who had been tipped to take the chairmanship of Santander Spain, will continue in his position.
"This will be of course a hot topic on Jan. 30 when the bank presents its results, and investors will be looking for what top management says about this decision," Javier Bernat, an analyst at GVC Gaesco Beka Finance, said in an interview. He said shareholders are likely to raise the question at the bank's upcoming annual general meeting and may put pressure on Botín for answers.
However, he said the decision may be in some way a lost opportunity for the bank because it would have helped it expand its corporate and investment banking globally, especially in Latin America where Santander derives a large chunk of its revenues.
Daniel Lacalle, chief investment officer at fund manager Tressis Gestión, said in an interview that the sudden change of heart was "obviously a PR disaster." But he predicted it would have a little impact on investors' perception of the bank because they understand the technicalities of bonuses and rewards. There would be "moderate" pressure on Botín to come up with answers, he said.
Orcel would have likely undertaken a restructuring of the bank's activities, Lacalle said, which would have jarred with the public, especially in Spain, a country that is still licking its wounds from the €41 billion bailout of its banking system during the financial crisis.
The change in decision "was more due to a risk of public perception or ethical perception of the multi-million hiring because at the same time it was going to come with a drastic restructuring of the labor workforce so imagine you pay one guy €50 million in order to save €20 million; that's not going to be a good headline anywhere."
However, the irony of the situation is that Santander will now more than likely be obliged to pay compensation for Orcel, Lacalle said. "Even not hiring him they will still need to compensate him for a few million."