Santander Withdraws CEO Job Offer Over Concerns on Compensation -- Update

By Margot Patrick, Dana Cimilluca and Liz Hoffman

Andrea Orcel, one of Europe's highest-profile investment bankers, found himself out of a job Tuesday, when Spain's Banco Santander SA said it would be unacceptable to pay him the amount of money it would have cost to make him chief executive.

Santander said it was canceling Mr. Orcel's September appointment after finding out how much it would need to compensate him for shares he would leave behind at his former employer, UBS Group AG, a figure that people familiar with the matter said was above EUR50 million ($57.4 million). The amount was more than it expected and could have become a fuse for anti-bank sentiment in its home market, people close to the bank said. Spain is still recovering from a banking crisis a decade ago during which hundreds or thousands of people lost their homes.

The unusual U-turn highlights the fraught issue of executive compensation in Europe. It also potentially complicates similar top-level moves in the future. Banks in the U.K., Switzerland and European Union defer swaths of bankers' compensation over years, under post-financial-crisis rules meant to curb short-term risk taking.

Even more unusually, Mr. Orcel resigned from UBS without formalizing how much Santander would pay him, people familiar with his departure from the Swiss bank said. He previously also had perks in his employment contracts such as a cap on his tax rate, which Santander hadn't accounted for, one of the people said. Mr. Orcel offered to forgo a significant chunk of the compensation he had earned at UBS, the people said. But it recently became clear that the Spanish bank could ill-afford a substantial make-whole payment in the current political environment.

Mr. Orcel could still walk away with tens of millions of his UBS earnings, to be paid mainly by his former employer -- though there is no guarantee he will.

People familiar with the matter said Santander misunderstood how much it would have to pay Mr. Orcel in lost compensation, and what UBS might pay him, a potentially complex calculation that depends on factors including whether the employee is joining a competitor.

Some UBS board members were upset by Mr. Orcel's departure, and the bank ended up taking a hard line in negotiating his exit package, according to people familiar with the matter.

"This is a matter between Andrea Orcel and Santander," a UBS spokesman said. "UBS applied the compensation-plan rules relevant in such cases and made them transparent to all parties before any decisions were made."

Mr. Orcel resigned from UBS in September to go to Santander, one of the world's largest retail banks by assets. He knew the bank well, having helped it acquire targets across the world as investment banker to late chairman Emilio Botín and Mr. Botín's daughter-successor, Ana Botín. But the jump into retail banking was unexpected and signaled Mr. Orcel hadn't been lined up to be UBS's next CEO, a job he had said he coveted. After failing to get assurances at UBS, Mr. Orcel responded when Ms. Botín courted him for the role last summer, people familiar with his hiring said.

But while Mr. Orcel was waiting to start at Santander early this year, the political climate in Spain, where the minority Socialist government needs support from the far left, became more inimical to a big executive-pay deal at the country's largest bank by assets. There was outrage in the country over a November court ruling that would have forced customers, instead of banks, to pay the mortgage stamp duty, leading the government to quickly pass a law forcing banks to pay it instead.

Mr. Orcel would have succeeded José Antonio Álvarez, who Ms. Botín wanted to move into another role. Tuesday, she said the decision not to hire Mr. Orcel was made to "balance the respect we have for all of our stakeholders" against the cost of hiring a single individual, "even one as talented as Andrea." Mr. Álvarez will remain CEO, Santander said.

Banking executives typically expect a new employer to compensate them for shares and pay they would lose by leaving their firm.

For example, when UBS hired Mr. Orcel from Bank of America Merrill Lynch in 2012, it paid him $6.3 million in deferred cash and around 18.5 million Swiss francs ($18.7 million) of UBS shares to compensate him for forfeited awards. UBS at the time said that was "in line with market practice."

--Patricia Kowsmann and Rachel Ensign contributed to this article.

Write to Margot Patrick at margot.patrick@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and Liz Hoffman at liz.hoffman@wsj.com

(END) Dow Jones Newswires

January 15, 2019 19:33 ET (00:33 GMT)

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