Morning Coffee: How could Andrea Orcel let this happen? The most dysfunctional relationship between an analyst and an MD

Early in the year, we already have a candidate for the craziest job move of 2019.  Andrea Orcel’s move from Head of Investment Banking at UBS to CEO-designate of Santander is off.

How can this be? Well, according to the early news reports, Orcel and Santander had both presumed that he would get some sort of “good leaver” status with respect to his enormous accrued deferred pay. This presumption was based on the fact that Santander doesn’t compete directly with UBS and has been a very good investment banking client over the years.  Unfortunately, it turned out to be wishful thinking. UBS demanded the full gardening leave period in Mr Orcel’s contract and uncategorically ruled out allowing Orcel to collect all his deferred bonuses. These were substantial - at around €50m.  Santander might have been prepared to compensate Orcel up to €20m, but felt that €50m was an amount that simply couldn’t be justified to their stakeholders. Orcel himself wasn’t prepared to walk away from all that money in order to get the job, and so the deal collapsed.

If this is all there is to this story, then it looks very much like one of Europe’s most successful investment bankers of the last few decades has made some rookie errors.  Literally the first instruction in Leaving Your Investment Banking Job 101 is that if something is important enough to jeopardize the move, you need to get it locked down, in writing, before you resign.  The details of UBS’s deferred compensation scheme should have been known to Mr Orcel (and to his lawyer) and if they’re like most other schemes, the starting point is likely to be that if you leave, you lose. If Orcel assumed that the rules would be waived for him because he’s so important (not entirely impossible given what people have said about his management style) then well, he’s just found out what happens when you assume.

Having made that error, though, why let it destroy the deal? The clawback details of Mr Orcel’s compensation package aren’t public, but it’s not usually the case that you can get the money back if your job offer falls through.  It seems to have always been assumed that Orcel would sacrifice some of the money in order to make the move happen – and to trade UBS share price exposure for Santander with the hope of making more money in the long term.  It seems that he’s done the one thing that experienced M&A bankers usually tell their clients not to do; he’s let a strategically vital transaction get away because of price. After all, fifty million euros is a lot of money to most of us, but Orcel was paid $30m in a single year once when he was at Merrill Lynch.  Seems like it’s harder to do your own mega-deals than to advise someone else.

Or ... or is there something else going on here?  When Orcel was appointed, we noted that if you hire a baker, it’s usually because you want to make some bread and if you hire a deal-maker it’s usually because you want to make some deals. If Santander have reassessed their strategy with respect to European consolidation, that might have affected their willingness to make politically unpopular stretches for CEO compensation. We can’t help noticing that the Orcel-to-Santander deal started falling apart almost exactly when stories started hitting the news about German government involvement in Deutsche Bank’s strategic future...

Alternatively, Santander might simply have decided they didn't like Orcel quite as much as they thought. It’s not at all uncommon for serious problems of cultural fit to be smoothed over during the hiring process, even at CEO level and even for people who think they know each other as well as Andrea Orcel and Ana Botín. If something of this sort had begun to arise (and Mr Orcel is not necessarily known as a particularly collegiate type), both sides might feel it looked better to agree publicly that it was all about the money.

Finally, it’s possible that something else has come up. As of tomorrow morning, Andrea Orcel becomes 2019’s version of Jean-Pierre Mustier, the guy whose name gets attached to every job that might be vacant.  After all that’s gone on, he’s probably not in the running to succeed Sergio Ermotti, but he would surely be a contender if the Deutsche Bank CEO turnover machine had another round, or if Credit Suisse decided that Tidjane Thiam had been given enough of a chance.  There are even several banks which are currently involved in scandals that easily lead to situations where Global Heads have to roll.

For the time being, though, 55 year-old Orcel is likely to tend his garden, avoid reading the newspapers and start looking around for a hedge fund or infrastructure investor to spend the next few years at, planning his return. It’s very unlikely we’ve seen the last of him.

Separately, an even more dysfunctional story presents itself at Moody’s in Paris, where what looked like a standard tale of management harassment turned out to have a twist.  A junior female analyst criticised a male Managing Director over the way his team had done some analysis.  Pretty soon after, the MD started putting negative comments in her annual review.  He then filed a series of complaints with HR accusing the junior of harassing another female analyst.  After taking a look at what must have appeared to be a textbook case of retaliation, Moody’s fired the MD.

So far, a typical and unedifying story of finance... But, and as emerged when the MD sued in a French labour court, the original “victim” had been harassing her female colleague, who had made four separate complaints to the MD about her “offensive and nearly abusive” attitude.  What a working environment that must have been.  The court has ordered that the managing director be reinstated and paid over €1m in back wages and stock compensation.

Meanwhile...

Andrea Orcel sprinkles his speech with references to luxury brands. (NYT)  

Just when the banks had been about to make some progress on gender diversity on the trading floor, someone tells them to add a load of computer programmers.  The quest to break through the overwhelmingly male culture continues; some of the worst behaviour is now beginning to be brought under control, but introducing family-friendly policies is still a struggle. (Financial News)

The cultural issues for women on portfolio management are less obvious, but just as real – here’s some advice (FT)

Not so long ago, Cantor Fitzgerald’s Sage Kelly was the ultimate poster model for bad banker behaviour. Now people are so keen to work for him that they’re prepared to run the risk of being sued (in this case, by Jeffries) to do so. (Bloomberg)

Earnings season continues and it looks like JP Morgan didn’t have a vintage quarter (FT)

The Barclays Euribor rigging trial has begun (FT)

The Nightmare Before Christmas; BNP lost $80m on a derivatives book while the head of trading was on holiday (Bloomberg)

The “housing ladder” is an arithmetical impossibility and there is no point buying rather than renting your first home as a banker (FT)

Chair of EY UK: “Based on advice from the chancellor on a briefing call tonight we will continue to advise our clients to plan for a no-deal Brexit.” (FT) 

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