Orcel’s rise to Santander CEO ruined by UBS pay dispute

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 am 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 UK Prime Minister Theresa May as a business envoy, made the switch in less than six months.
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.