Spanish lender Santander CEO fiasco exposes banking’s fault line

The battle over Santander’s CEO has given human shape to banking’s fault line. It’s a year since Ana Botin, the Spanish lender’s chairman, reversed her decision to make UBS executive Andrea Orcel the group’s next boss.

In the coming months Orcel’s 112 million euro lawsuit threatens to highlight the clash of cultures between retail and wholesale lending.

The division is one of the most enduring splits in finance. A vast gulf still separates financial institutions which deal with consumers and small businesses, and those that make their living from corporate and institutional clients.

For Orcel, the job presented a step up. Since joining UBS in 2012, he had overseen a far-reaching restructuring of the Swiss group’s investment banking division. Taking charge of Santander, which has some 200,000 employees spread across retail and commercial banking operations in Europe and North and South America, was an even larger leap. Orcel had spent his career with competitive investment bankers.

However, by changing jobs Orcel was potentially giving up about 55 million euros of deferred compensation from the Swiss bank, a legacy of post-crisis rules whereby senior executives are paid in stock that they cannot cash in for several years. Bankers who join a rival typically forfeit those payments, and demand compensation from new employers.

For investment bankers who tend to view their compensation as an absolute measure of their value relative to peers, sparring over pay is common.

Santander’s board seemed less prepared for such disputes.

Botin thought she could resolve the dispute amicably. In February 2019, she traveled to London to meet Orcel and his wife in a cafe. The couple left saying the matter should be resolved in court.

The battle is risky for Orcel. Suing your longeststanding client and prospective employer is hardly a great advertisement for a 56-year-old who still aspires to a top banking job. In the meantime, the lifelong workaholic is stuck on the sidelines.

The risk to Botin is arguably greater, though. Santander could end up having to pay Orcel for the job he never got to start. Revelations over vast pay packages hurt the bank’s image with its retail clients, and call Botin’s leadership into question.

Whatever the outcome, the fault line between retail and investment banking has rarely been more vivid.

The authors are Christopher Thompson and Peter Thal Larsen, Reuters Breakingviews columnists. The article was first published on Reuters Breakingviews. bizopinion@ globaltimes.com.cn