Last night banking giant Santander shocked the industry when it reversed its decision to appoint Andrea Orcel as its new chief executive, stating that the cost of compensating him for leaving his previous role was too high.

The bank had announced the appointment of Orcel in September. Orcel was previously the head of investment banking at UBS, and was expected to take over from current CEO Jose Antonio Alvarez early this year.

However, in a statement released yesterday, the Spanish lender cited that it had “now become clear that the cost to Santander of compensating Mr Orcel for the deferred awards he has earned over the past seven years, and other benefits previously awarded to him, would be a sum significantly above the Board’s original expectations at the time of the appointment”.

According to the Financial Times, three people familiar with the discussions that took place noted that Santander was facing a bill of as much as €50m to pay Orcel for the UBS stock, which would have been paid in the form of shares in the Spanish bank that would have vested over time.

Despite this, two of the people highlighted that this figure could have been lower, depending on how much Orcel was willing to sacrifice.

In light of the decision, Jose Antonio Alvarez, who has remained in the role since the announcement, will continue to serve in his current role without change, and will also fill the position of vice chairman of the board. As a result of this, Alvarez may not be able to take up the position of chairman of Santander Spain in March, with current chairman Rodrigo Echenique staying in the position until a successor is named.

Commenting on the decision, Santander executive chairman of the board Ana Botin said: “Santander is a retail and commercial bank with significant responsibilities to the societies in which it operates. In making this decision we have had to balance the respect we have for all of our stakeholders - the millions of people, customers and shareholders we serve - with the very significant cost of hiring one individual, even one as talented as Andrea, by compensating for the loss of a significant proportion of seven years of his past remuneration.

“The Board and I are certain that this decision, although difficult to take, is the right one.”

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