Abigail with attitude: UBS's Orcel escapes financial repression


Abigail Hofman
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Most of us carry scars from the excesses of the debt-fuelled casino days. The acceleration, crash and burn of the 2005-09 period led to lost jobs, dwindling pension pots and puny returns on cash savings. But for some the great financial recession has cast few shadows.

I thought about this in early March, when I read that Andrea Orcel, the head of UBS’s investment bank, had received a SFr25 million ($26.4 million) package when he joined the Swiss bank from Bank of America. The headline number has prompted a sharp intake of breath from many commentators, shareholders and employees.

This criticism is only partly justified. Orcel’s deal was a buyout of the package he would have received had he stayed with his former employer. It is broken down into SFr6.4 million of deferred cash and 1.76 million UBS shares (worth approximately SFr18.5 million at the date he joined). Orcel, as one of the best dealmakers in the market, is an excellent negotiator, whether for his clients or himself. Any bank that wanted to hire him would have had to pay this price. And I have heard whispers that other banks baulked at this.

For those who grumble, I would point out that since Orcel joined the firm, UBS’s shares are up some 35%, largely because of the drastic restructuring plan he devised with his former Merrill Lynch colleague and current UBS chief executive, Sergio Ermotti.

Shareholders might do well to quell their cavilling. As a big shareholder Orcel has profited from the rising share price
So shareholders might do well to quell their cavilling. Indeed, Orcel as a big shareholder has profited from the rising share price. His net worth has risen by over SFr6 million as the shares that he was granted when he joined UBS have soared. But isn’t that what we all want: bank executives whose compensation is aligned with the interests of shareholders?

And don’t let us forget that Orcel’s compensation is puny in comparison with the controversial ‘golden goodbye’ of SFr72 million proffered to Daniel Vasella, the departing chairman of Novartis. Unfortunately for despondent Dan, miserly shareholders revolted and his munificent leaving gift shrivelled.

The arrival of Orcel might be excellent news for the Swiss bank: revenues might soar on improved corporate finance activity and trading blow-ups might dwindle as risk is curtailed. Ultimately, the success or otherwise of Orcel will reflect on the judgment of the man who hired him, Sergio Ermotti. Energetic Ermotti is coming to grips with UBS’s difficulties (see the excellent: ‘Reshaping UBS’ Euromoney February 2013). Nevertheless, some might quibble that Ermotti’s own pay package for 2012 was excessive at SFr8.9 million given that the bank cut staff, reduced compensation for most employees and made a SFr2.5 billion loss for the year after paying a SFr1.4 billion fine for manipulating Libor.

I will watch with interest UBS’s first-quarter results due in late April; it will be intriguing to see how events play out at the bank’s annual general meeting, in May, when shareholders will have a chance to put forward their point of view.