In Madrid, the County Court partially upheld Banco Santander’s appeal against an initial penalty. The business had been ordered to pay 51.4 million euros for the unsuccessful signing of Andrea Orcel. Orcel, an Italian banker, had been slated to become CEO in September 2018, and the court’s decision reduced the compensation from 51.4 million to 43.4 million euros, according to a report by Europa Press.
In September 2018, Santander extended a formal offer to Orcel, then a UBS banker, indicating he would assume the CEO role within a month. By January 2019, however, the board chose to step back from the arrangement, declaring it unaffordable to meet the deferred bonus agreed with UBS. Orcel subsequently sued Santander, seeking a declaration of the validity of the September 24, 2018 contract and compensation for the disruption of the agreement.
In December 2021, Madrid’s 46th Court of First Instance ordered Santander to pay Orcel 68 million euros for the unsuccessful signing, while reducing a larger claim of 112 million euros. The court also outlined the components of the award, including a founding bonus, long-term incentives, and compensation for reputational harm.
The judge determined a 17 million euro incorporation bonus, 35 million euros in long-term incentives, 5.8 million euros equivalent to two Santander salaries, and 10 million for non-pecuniary damages related to the breach of the signing. In January 2022, the same court clarified and reduced the penalty, setting the total at 51.4 million euros, after recognizing that a 35 million euro long-term incentive was treated as a purchase. It also noted Orcel had already received 6 million euros previously.
Additionally, the final long-term incentive amount was revised to 18.6 million euros, with an expectation of 29 million euros to be generated after tax adjustments and discounting. The court further clarified that only 32.8 million of the compensation would be paid in cash, while 18.6 million would be issued as shares and deferred payment.
Madrid County Court confirms the validity of the preliminary contract
Santander appealed the December 2021 ruling to the State Court of Madrid, which reaffirmed the validity of the preliminary contract signed on September 24, 2018, and decided in mid-January. The court found that by March 31, 2019, when Orcel’s engagement with UBS was formalized, the document was created with the intention to be fully enforceable, binding both parties to the described contractual relationship.
While the appellate panel noted Santander’s unilateral decision in January 2019 to terminate the preliminary contract as contrary to the initial understanding, it also highlighted UBS’s position on reducing the suspended fee or its timing. The notice approving Orcel’s joining had been known to Santander from the outset.
Compensations
Regarding compensation, the court reiterated that Santander paid Orcel 17 million euros for the incorporation bonus, 18.6 million euros for long-term incentives, and 5.8 million euros, equivalent to two Santander salaries, as part of the arrangement with UBS before the formal signing with UniCredit. The court accepted Orcel’s claim for non-pecuniary damages caused by Santander’s decision to step back from the signature. It noted reputational damage could be presumed to be objectively evident and significant enough to cast doubt on Orcel’s professional standing.
The court also observed that Orcel was highly frustrated by the rejection of the original plan, which left him unemployed for two years before finding alternative employment. However, the claim for ten million euros in non-pecuniary damages was rejected as excessive; the award was reduced to two million euros due to insufficient evidence of a more tangible circumstance that would elevate Orcel’s personal or professional situation. The unemployment period was a factor, though some compensation from UBS during that time was acknowledged.
With regard to interest, the court noted that the first-instance decision had included interest on the full 17 million euro corporate amount, but the revised ruling limited interest to the portion actually requested by Orcel. The sentence directed interest to be applied only to the requested amount and adjusted accordingly.
Santander will appeal the sentence in the Supreme Court
Banco Santander expressed satisfaction with the partial ruling and noted that the court had reduced the originally claimed compensation from 112 million euros to a lower sum. Santander stated that Orcel is entitled to a reduced cash amount of 24.5 million euros, with approximately four million euros in shares to be delivered in the future. The bank had already provisionally complied with the first-instance decision by paying 33 million euros in cash, and the revised payment of 24.5 million euros implies that Orcel may owe eight million euros plus interest if applicable.
It should be noted that Santander had already fulfilled part of the first-instance decision. The bank plans to appeal the ruling to the Supreme Court to seek further clarification and resolution.