The goodbyes were emotional – on leaving UBS, Andrea Orcel quoted Winnie the Pooh and said “How lucky I am to have something that makes saying goodbye so hard”. The hellos were not much less gushing; Ana Botín reminded us that “Andrea has worked closely with us for the past two decades, in the development and execution of our strategy, and understands and is aligned with the Santander culture”.
And so it was that one of the top investment bankers of a generation, the man who was paid $30m in a single year at Merrill Lynch, left his post as head of UBS's investment bank to be the new CEO of Banco Santander. But once the tears of sadness and joy have dried, what should we expect from the future?
It’s certainly not a normal CEO promotion move. The top job at Santander is not the CEO, it’s the ranking member of the founding Botín family, currently Ana. And the outgoing CEO, José Antonio Alvarez is not leaving, retiring or going out to pasture; he’s going to be the executive vice-chairman and the CEO of Santander Spain. So since Orcel is not exactly moving out of a new-found desire to run a Spanish retail bank, what’s the plan?
The press release gives few clues, but there has to be a strong suspicion that if you hire a baker, it’s because you want to make some bread and if you hire a deal-maker, it’s because you want to make some deals.
But what deals? It might pay to think big. We know that Santander has had success in the past in turning round franchises with serious operational and IT problems (Abbey National). We know that it’s often been prepared to buy a large group in order to get the parts it wants, sometimes working with others to do so (ABN Amro). We know that it’s prepared to pay up if it has to (Banespa) but it would rather get a bargain from a distressed seller (Sovereign) And we can also guess that the European regulators regard Santander as a safe pair of hands, and maybe even owe it a favour for helping them out of a sticky spot (Popular). Nearly all of these were deals on which Andrea Orcel advised, by the way.
So, can we think of any possible targets that might fit the template? Is there, say, a blue chip brand that’s fallen on hard times that have brought it well within the feasible valuation range? Possibly one that’s even fallen out of its domestic stock index and the Eurostoxx? A bank that’s a bit of a sprawling conglomerate, with some operations that have been reviewed for possible sale in the recent past? Maybe one that’s had a lot of regulatory trouble and is notorious for its rat’s nest of IT and operational problems?
It would have to be something with excess costs that could benefit from Santander’s cost-cutting approach – possibly even something with an investment bank where Andrea Orcel could repeat his successes from UBS. And it would be nice if it had a strong payments franchise, and maybe a branch network that would provide synergies in a core European market where Santander has an existing second-tier operation. The icing on the cake would be if a target could be found with a low average risk weight on its balance sheet, giving the potential for a capital arbitrage. Can anyone think of a bank that fits those criteria? Maybe even … a German bank?
“SantanDeutsche” doesn’t feel like it’s something that’s going to happen in the immediate future. There’s a lot of movement in Euroland that would have to happen before any major cross-border mergers could seriously be considered, let alone one that would take out the German national champion. But … never say never. Deutsche Bank is not exactly an ornament to the German national pride at the moment, and if Europe is ever going to be taken seriously as a Banking Union, it can’t rule things out just for reasons of national amour propre. And whether or not it’s Santander, Deutsche employees might do well to look back at that list of things that make it an attractive target, and think about what would happen to their particular part of the bank if someone decided to break it up. Stranger things have happened.
To give an idea of the scale of things these days, JP Morgan have spent half of Deutsche’s market capitalisation on fintech investments this year alone. In an interview with the FT, CFO Marianne Lake claims that the $10.8bn spend so far this year isn’t really the result of an attempt to use a “financial bazooka” to leave the competition behind. It’s more of a matter of spending a hundred million here, a hundred million there and before long you’re talking about real money – 10% of JPM’s revenues, roughly.
Nonetheless, whether the intent is to intimidate or not, the program appears to be having that effect, particularly on European peers who can hardly remember the days when they weren’t having budgets cut for speculative spending on new tech. It’s a picture that some of them have seen before; in the 1990s, banks which were unable to develop their own value-at-risk systems ended up building on the open RiskMetrics platform developed by JP Morgan. Now they’re being offered the opportunity to join the Interbank Information Network, the JPM open blockchain project. The consistent theme is that JPM first outspends the rest of the banking sector, and then helps to lock them into the technology choices it made. If your main interest is working in tech for a standard setter rather than a standard follower, you might want to bear this multi-decade track record in mind.
The regulators of the world are getting a bit irritated by the industry’s inability to get its act together (again). This time, it’s because people are still linking an increasing number of derivatives contracts to LIBOR, despite the fact that the “big switch off” is only in 2021, after which it’s not certain that the rate can be calculated consistently with the regulations that will come in. They are now asking for specific names of managers responsible for the transition process. (FT)
New Financial, the City thinktank, has challenged the buy-side’s assumption that it is a meritocracy based on generating returns. Just 4% of UK fund assets are managed by women. According to one analyst quoted in the report “women live and die by their quarterly numbers … men are cut more slack” (Financial News)
Meanwhile, Morgan Stanley’s female MDs – all 350 of them, 19% of the total – are converging on a summit meeting aimed at improving the pipeline of women MD promotions, and getting more of their number into the top posts (Crains New York)
Every year, 400 Credit Suisse bankers become fathers. From next year, new fathers will get 12 days of paid “daddy leave” (Finews)
An unsettling story of how someone got hired to Goldman Sachs, fired for enticing an NFL star into an insider trading scam, then moved to Hollywood and became a writer for the Simpsons, all on the basis of a Harvard degree which he did not actually get due to serious allegations of misconduct (WSJ)
Inside story from the GAM Absolute Return Bond Fund investigation, which suggests that the whistleblower was Tim Haywood’s partner on the fund, and that the securities which triggered the disagreement had been bought as part of a deal brokered by former CEO David Solo (Finews)
Stacy Bash-Polley, head of Client Relationship Management and Strategy at Goldman Sachs, will be retiring at the end of this year after 24 years at the bank (Reuters)
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