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Morning Coffee: Beware the wrath of Andrea Orcel, and the bank that gave us “Fat Harry”

Andrea Orcel is raising the temperature a little bit.  He hasn’t quite yet hired famous ring announcer Michael Buffer to shout “Let’s Get Ready To Rumble”, but his latest approach to Santander is really quite combative.  The former CEO of UBS's investment bank, who has a famour temper, is asking for a total of €100m, to cover his lost earnings and a few lawyers’ bills.  It’s an amount that would be excruciatingly embarrassing for Santander to pay, as it’s significantly more than the amount of deferred compensation over which the initial deal to bring him on board fell apart.  If they don’t want to pay, he is apparently offering an alternative – to honour the original contract and make him CEO after all.  That seems hardly less embarrassing.

The public humiliation factor has only just begun though, and it’s possible that this might be an intentional tactic on the part of the Italian investment banker.  The lawsuit isn’t coming to court yet and it may never do so; Mr Orcel isn’t going to file it until he’s heard Santander’s response to the draft text he’s sent them.  So, if a quick settlement can be reached, nobody will have to go through a detailed process of discovery and cross-examination where, under oath, all the parties to this saga have to explain exactly what they did, when they did it and why.

Since a number of senior players on the Santander side don’t necessarily come out of the story looking particularly good if the behind-the-scenes reports are true, it might certainly be the case that the Spanish bankers would rather end this one early with an out of court settlement, presumably including a tightly worded non-disparagement clause on both sides.  But a sum of money that would be enough to satisfy Mr Orcel’s sense of honour would not be painless; it would be as much as 1% of the 2018 profit and would probably need to be broken out in the annual accounts.

Which raises a really fundamental issue for Santander of who is going to take responsibility for this mess?  Somehow, over the course of the first half of this year, a set of decisions were taken which upset the entire succession plan for the CEO role and which might lead to a massive financial cost, a PR nightmare of a court case, or both.  The accountability might end up with incumbent CEO José Alvarez, or with some of the Santander regional heads who feared losing their independence, but many credible accounts seem to place the blame directly with Ana Botín and a personality clash.

And that really would put the cat among the pigeons in governance terms.  The Botín family created Santander, and they still own around 2%, but they are not the largest shareholders and it’s not obvious why they should chair the board.  Investors have tolerated this in the past because they’ve been happy to come along for the ride on Santander’s growth trajectory, but a public airing of the Orcel case could force governance specialists to speak up.  Perhaps that’s Orcel’s threat; taking on one of the world’s biggest banks is not exactly a lawyer’s dream, but Santander’s decision makers might feel they have more to lose than he does. Orcel, meanwhile, could do with some money to start his own boutique and clearly feels that a matter of principle is at stake.  “I’m not known to be a person that lets go, especially when I think that the right thing to do is to not let go,” he told the Financial Times earlier this year. 

Elsewhere, how about a feelgood story of family banking for a change?  The firm of C Hoare & Co, in London, is so old that its archive includes the “golden bottle” sign that it used to use as an address before street numbers were invented.  The main governance problem along the way seems to be that so many family members had the same name that they had to use nicknames to distinguish them – “Henry the Good”, “Henry the Magnificent” and “Fat Harry”. They’re on their eleventh generation and still retain the structure of an unlimited liability partnership, which is presumably why the bank is incredibly risk-averse and largely sticks to deposit business for ultra high net worth clients.

It’s not necessarily the way to get mega-rich – the total book value of C Hoare is around £370m, which is a decent amount of money, but which suggests that each individual partner has a net worth less than Andrea Orcel (or for that matter, less than the “ready to rumble” guy, who made hundreds of millions from licensing his phrase).  But on the other hand, it does reflect a history that’s kept the Hoare family in the top tier for over three hundred years, which is more than many firms can boast.  According to Alexander Hoare, “there’s two things that can destroy a family business; the business and the family” and neither has done so yet.  You might even be able to work there; there are over 2,000 living descendants of Richard Hoare after all, and if you’re not one of them, they employ a non-relative as CEO.

Meanwhile …

The Chris Rollins/Lars Windhorst/Goldman Sachs case is going into compulsory arbitration; given that the H20 affair has raised the profile of Mr Windhorst, this is a good result for Goldman as it will cut down on the daily headline risk. (FT)

The UK Supreme Court has ruled that although a particular clause in many non-compete agreements (particularly those popular in the interdealer broker industry) is too vague to be enforceable, this doesn’t mean that the whole non-compete is null and void. (Bloomberg)

A detailed overview of all the things that London needs to sort out if it’s going remain the key European financial centre after Brexit (Bloomberg)

According to Lorenzo Bini Smaghi of SocGen, the main mistake they made in 2018 was not firing enough traders quickly enough (FT)

And Stifel is offering voluntary redundancy to its whole London markets division, in what looks like another MiFID casualty (Financial News)

The market for engineers and data scientists just got even tighter – Amazon intends to make another 2,000 hires in the UK, including in the high-end specialist areas where it competes for people with finance. (Bloomberg)

There’s not much that says “Italian investment banker” more stereotypically in summer than a pair of £100 espadrilles, which is presumably why two of them left SocGen and Bank of America to set up a new brand selling them from seven stores in Italy and one in Ibiza (Drapers)

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AUTHORDaniel Davies Insider Comment

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