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M
January 25, 2013 7:25 pm
Emilios perfect stormBy Patrick Jenkins
Is the arch-dealmaker and indefatigable head of Banco Santander
finally about to come unstuck?
ost mornings in Somosaguas on the northwest fringes of Madrid, neighbours who are
awake can spy a spritely, diminutive septuagenarian taking a 6am stroll around his
home or on his treadmill. Later he might play a round of golf or go to the gym. In between he
runs continental Europes biggest bank.
Meet Emilio Botn, head of Banco Santander and king of Spains business community.Seventy-eight years old, quietly spoken and 5ft 8in tall, Botn looks like a man who could
have retired 10 or 15 years ago. He doesnt travel the world delivering tub-thumping
speeches. He rarely gives interviews and only seldom meets investors, analysts or
ournalists.
El presidente (the chairman), as his colleagues and even
members of his family call him, is certainly understated. But he
has the swagger of the long-successful businessman about him, nonetheless: the pristine
grooming, the thinning but still jet black slick of hair, the tell-tale Spanish strut.
This is the man who has turned Banco Santander from a small regional Spanish lender into
one of the biggest banks in the world from Barcelona to Britain via Brazil. Today he
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The reason? Santander is facing a perfect storm. Its domestic market lies in tatters annual
results next week will show the extent of the damage. Questions are increasingly being
raised over the banks financial strength. And the chairman himself is now 13 years beyond
normal retirement age without a clearly communicated succession plan. Trouble is looming,
whichever way you look at it, for Botn and for Spains biggest bank.
With Santander-sponsored F1 driver Fernando Alonso in Singapore last year
BANKING DYNASTY
Emilio Botn-Sanz de Sautuola y Garca de los Ros, Marquis Consort of OShea was always
going to be a banker. His grandfather (Emilio I) had been chairman of Santander from 1909.
His father (Emilio II) took over in 1950. And, sure enough, in 1958, as a moneyed 23-year-
old aristocrat with degrees in law and economics, Emilio III joined the family firm too.
Botns apprenticeship taught him the business from the bottom up: he analysed credit risk,he represented the bank on the boards of the many industrial companies that the bank
owned, and built a network of valuable business contacts in the process. Robert Tornabell, a
professor at Barcelonas Esade business school, has known the Botns for years. A key
moment for young Emilio came in the late 1970s when he helped the group avoid the
banking crisis in which Spain lost 57 banks, says Tornabell. It was the banks industrial
shareholdings in troubled mining companies and steel companies that killed them. But Emilio
understood the risks of owning those stakes and told his father to sell them.
Despite such flashes of influence, swaths of Botns first 28 years at the bank passed by in a
mix of boredom and frustration, as the heir-in-waiting found himself routinely kept in check
by an overbearing father. He was always asking questions, he was always very curious,
recalls one contemporary. But he wasnt given much responsibility, he kept a low profile and
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The late Emilio Botn Sr, w ho only
gave w ay to his son in 1986 w henhe stepped dow n as chairman, aged
83
he never challenged his father. He was just hanging around waiting. Towards the end of that
period, one friend remembers Botn a frustrated rich kid with nothing to do almost in
tears, complaining that his father never delegated anything to him.
But the tough treatment appeared to motivate the young Emilio,
rather than break him. In 1986, at the age of 52, his then 83-
year-old father finally deemed it time to hand over thechairmanship. This was the sons chance to realise a far more
ambitious vision for the bank than his forebears had ever had
and he did not hesitate. Like a coiled spring set loose he has
committed his life ever since to expanding Santander, taking it
multinational, turning it into Spains biggest bank and elevating
himself in the process into a legendary public figure with a vast
personal fortune (Forbes puts it at $1.1bn).
Aided by behind-the-scenes networking, Botn now commandssuch status that even his critics believe him to be untouchable.
The chairman prides himself on his political connections and
there was an especially close relationship with the former prime minister Jos Luis
Rodrguez Zapatero. In late 201 1 the outgoing PM even pardoned Botns chief executive,
Alfredo Senz, following a criminal court guilty verdict that was set to see him barred from
banking for three months.
There are conspiracy theorists, motivated in many cases by professional envy rather than
fact, who allege far worse against the Santander chairman. But there does seem to be a
darker side to Botn: there have been several legal scandals over the years, most recently
when a secret Swiss bank account dating back to 1937 was exposed by a whistleblower,
triggering a swift 200m settlement with the Spanish tax authorities.
And yet much of the domestic press portrays Botn as a faultless national hero, rarely
reporting anything negative about him or the bank. Critics suggest that they may be keen to
protect the advertising revenue on which the Spanish media is unusually dependent. The
pressure he exerts is incredible, says one senior banker.
THE DEALMAKER
Whatever else he may be, Emilio Botn is a consummate banker. In contrast to many rivals
who have tripped up through the financial crisis, he has excelled at the two basic disciplines
of banking risk management and cost control often delivered through top-notch IT.
On a picturesque hillside a few miles from the banks original home town of Santander on
Spains craggy north coast, the bank has just thrown up a clutch of brutalist buildings. The
new 250m Cantabria data centre is one of five being erected around the world to help cut
costs and improve risk control by giving managers live information on loans in all the
markets where the bank operates.
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Emilio played Fred [Goodw in] like a Stradivarius. He
used to put his arm around him and say, Youre
such a brilliant CEO, and at the same time,
metaphorically, he w as picking his back pocket
The newfangled systems are buttressed by an old-fashioned approach. In August, we spent
three days locked away in the town of Santander, assessing all our exposures of over 50m
country by country and counterparty by counterparty, says Matias Inciarte, 64, who heads
responsibility for risk.
Controls like this helped Santander ride Spains boomtime growth in the decade before the
financial crisis, without the level of subsequent loan defaults that finished off many of the
countrys smaller, less sophisticated lenders. But Botns success is twin-engined. Alongside
his obsession with the finer details of banking is a wilder streak.
The business of buying up rivals has always got the chairmans blood racing and enhanced
his power at home and abroad. Combining charm and ruthlessness, he struck his first
decisive deal in 1999, when Santander merged with Spanish rival Central Hispano. Botn
already nudging normal retirement age was supposed to share power with his opposite
number, perhaps bowing out after a year or two. Instead, within weeks he had seizedcontrol, controversially spending more than 160m of bank funds to persuade Central
Hispano executives Jos Amustegui and Angel Corcstegui to go quietly.
Similar drive was also on display a decade later in what was at the time the biggest ever
bank takeover and has since become the most notorious. The three-way acquisition of
Dutch bank ABN Amro in 2008 an unmitigated disaster for RBS and the Benelux-based
banking group Fortis was a triumph for Santander. One senior RBS executive of the day
recalls how his now humbled CEO, Fred Goodwin, was outsmarted by the Spaniard. Emilio
played Fred like a Stradivarius, says the banker. He used to put his arm around him and
say, Fred, youre such a brilliant CEO, and at the same time, metaphorically, he was picking
his back pocket.
While RBS was left with the most toxic parts of ABN,
which subsequently contributed to the banks failure,
Santander not only secured ownership of a prized
Brazilian operation but also pulled off one of the most
brazen flips ever seen in the world of mergers andacquisitions, selling ABNs Italian unit Antonveneta on
to Italys Monte dei Paschi di Siena for 9bn only days
after acquiring it for 6.6bn from the Dutch bank.
The dealmaking bravado has worked in reverse, too,
with Botn shedding bits of the group to raise cash and
help it through the deepening Spanish crisis. In
December 2011, executives of the bank gathered in the
bowels of the five-star Botn-owned Hotel Real hard by the family seat in Santander town.
On the agenda was one special item: how would they respond to the unprecedented call from
European regulators spooked by the deepening eurozone crisis for 15bn of fresh
capital?
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People at the meeting recall Botns no-nonsense insistence on tackling issues head-on and
fast. Within weeks, Santander had raised the money it sold its Colombian arm, floated a
stake in its Chilean subsidiary and accelerated a convertible share holding sold to Qatariinvestors in Santanders Brazilian subsidiary. Santander is at its best when faced with a
crisis, says one senior figure at the bank. It moves very quickly when it smells a problem.
KEEPING IT IN THE FAMILY
Such speed of response stems from the family. It is a century since a Botn first chaired
Santander. Three generations on and the family influence is clearer than ever. The Botns
ownership might have dwindled to barely 2 per cent, from 40 per cent in the 1980s, but they
are still running the show and command three seats on the board.
Botn often starts his working day by 7am, haranguing executives with demands for the
latest operational data. One former colleague describes his office at the hub of Santanders250-hectare campus headquarters in Madrid as like a Bond villains lair. He almost has
a home there, with a kitchen and a bed where he takes a siesta sometimes. Its perched at
the top of the main building. From it he can see everything. Below is a vast boardroom,
where Botn meets visitors. At a recent breakfast appointment with the FT, he arrived a
polite five minutes late proffering a gift: a Bulgari tie, Santander red, identical to those
worn by staff right up to board level (including Botn himself) in an almost cultish devotion to
the brand. The chairman, presumably nervous of probing questions about the banks
exposure to the troubled Spanish market, had refused an on-the-record interview but he
was a gracious host nonetheless, and evidently firm in body and mind despite his age. As at
most meetings, he was quietly dominant, the revered patriarch.
Botn leads a model healthy existence these days he is virtually teetotal, eats carefully
(picking at scrambled egg whites and fruit for breakfast) though he has one vice that is a key
source of energy, says a friend: a taste for caffeine. He always has a can of Coke in his hand.
Sometimes hell even show up at an evening function with a Coke and a packet of nuts.
Colleagues say Botns work ethic and long hours away from home not to mention his
passion for F1 have led to an increasingly distant relationship with his long-time wife,
Paloma a pianist and founder of a music college. Yet the Botn family remains tight-knit.
Jaime Botn, the chairmans brother, part-owns and heads another of Spains big lenders,
Bankinter. Javier Botn, the youngest son tainted by a big misjudged investment in the
infamous Bernard Madoff Ponzi scheme helps run the family foundation and sits on the
main bank board.
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Ana Patricia Botn, CEO, Santander UK. Whatever Emilio expects f rom most people w ho w ork for him, he expects
tw ice as much from Ana
But the pivotal family relationship is between Botn and his eldest child. Ana Patricia,
currently head of Santanders UK subsidiary, is the only top-notch banker among the Botn
offspring and the chairmans most likely heir. Friends say that there is also an element in
their relationship of the tough love Botn experienced at the hands of his father. Whatever
Emilio expects from most people who work for him, he expects twice as much from Ana,
says one. He sometimes appears to treat her both in public and in private like the truculent
teenage daughter, adds a former colleague.
Ana Patricia is 52, and an ultra-elegant, modern, international version of her father.
Educated in the UK (at the Catholic boarding school, St Marys Ascot) and in the US (Bryn
Mawr college in Philadelphia, then Harvard), she began her career as an investment banker
at JPMorgan, before switching to Santander 24 years ago. Her broad banking experience,
perfect English and more transparent manner suggest she might even make a betterchairman than her father. People she has worked with praise an impressive ability to
combine toughness with the charm vital to court clients and foster staff loyalty. She has a
mixed record of success within the group, however. Her early management roles were less
than impressive attempts to build a Santander investment banking operation and push
rapid Latin American expansion both had to be reined in. But her last post, heading Spanish
subsidiary Banesto, went well profits nearly doubled over the seven years to 2008. In her
current job at Santander UK, she has overseen a sharp decline in the bottom line, albeit amid
a difficult economic environment.
Today Ana Botn rebranded for the British market without the complicating Patricia is
working harder than ever. Following her fathers model, she rises early, at 6am, trains
intensively on a home workout machine then heads to the London office. She has a home
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nestled between Kensington and Victoria, though she still takes weekly trips to Madrid for
executive board meetings. Invariably immaculate, she has refined tastes often
breakfasting (on tea and a croissant but nothing more indulgent) at an exclusive SW1 hotel,
and at evening events sipping champagne in preference to wine (though never much of that
either).
The Botns regal lifestyle includes the use of Santanders two private jets. There are homesin central Madrid, in Santander town and 100 miles south of the capital in Ciudad Real (a
classical finca, with horses and thousands of hectares of hunting land). Emilio Botns
favourite holiday destination is Tanzania, where he spends large sums on big game hunting.
Friends say he has even shot elephants and relished the thrill of the chase and the felling of a
giant adversary.
Part of Santanders state-of-the-art Madrid HQ, featuring 1,000-year-old shipped-in olive trees
Now, though, the grandiosity of the chairmans lifestyle is in stark contrast with a stagnantshare price, as critics have begun to notice. Nowhere is the Botn ego clearer than in
Santanders physical presence. At that Cantabria data centre, the windowless control hub is
like a Nato war room. More opulent still is the Madrid headquarters with an orangery-
themed reception area, golf course, tennis courts and 1,000-year-old shipped-in olive trees.
Arriving at the campus is like entering another nation state, so stiff is the security, and in the
futuristic welcome centre, visitors are greeted and chaperoned by 3ft-high multilingual
robots.
THE BACKLASH
On March 30 last year, a revolution against the Botn way of doing things began in earnest,
as investors filed into the banks annual meeting at the modernist exhibition centre in
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Botn in 2005 w ith former Spanish PM, Jos Luis
Rodrguez Zapatero, w ith w hom he enjoyed a closerelationship
Santander.
Ahead of the AGM, the family and the rest of the banks management had been expecting
the usual resounding support from shareholders. But this meeting was set to be different.
Many of Santanders long-supportive individual investors were seething 140,000 of them
had bought an aggregate 7bn of so-called valores, a kind of mandatory convertible bond,
which had been issued to help finance the ABN deal but was now about to convert into sharesworth less than half the amount they paid for them.
At the same time big institutional investors were preparing to rebel over what they saw as
an over-cosy boardroom. Opposition was fuelled by a global mood of protest over pay and
governance this was the so-called investor spring. As usual, Botns powers were
buttressed by the many small shareholders who routinely waive their voting rights,
transferring them instead to the family. Even so, Botns re-election to the board was
opposed by nearly a quarter of investors in protest at the banks lack of independent
directors.
Santander claims that half of the 16-member board are
independent. But in reality only two would qualify
under the governance standards of many countries
not only are there three Botns, the remainder have
been on the board for at least 10 years. Governance is
a sham, reckons one long-time investor. Its just the
family running things. Another comments: That kind
of structure can often work well and to investors
advantage. But the danger is that sentiment can
change. Critics draw parallels with the status of the
Murdoch family within News Corp once the power
base of the media empire, now more of a problem.
Another quirk at Santander is that while a standard
company might have a chief executive whose
management actions are policed by a non-executive
board, Botn has retained for himself an unusual degreeof power as executive chairman.
A sprinkling of board members concede that governance needs improving, but the official
Santander position is unapologetic: The banks successful growth and steady performance
through the crisis is due in large part to its corporate governance, and not in spite of it.
Some of those who protest about Santanders shortcomings in the boardroom do so on
ideological grounds. Others criticise dangerous practical knock-on effects from what they see
as a regime that allows Botns ego to go untrammelled. Take acquisitions and dealmaking,
which one investor describes as an obsessive compulsive disorder in Botn. Hes like a
private equity guy, says another disaffected investor, criticising Botns sweeping strategy of
turning Santander into a holding company for subsidiary banks around the world, reducing
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its ownership of its fastest-growing units in Brazil and Mexico in a dash for cash. That in turn
hurts the value of shareholdings in the group as a whole.
Investors other big beef is with the banks dividend policy and what many see as Botns
obstinacy in maintaining a payout even as bad debts mount at home and abroad, weakening
profits. Payouts for 2012, analysts forecast, will amount to more than 160 per cent of profits
dwarfing a typical company payout ratio of 20 to 40 per cent. Santander doesnt need topay out so much, says one top 10 investor. They should reset the dividend at a lower level.
That would strengthen the balance sheet.
Undeterred, Botn trumpets the fact that Santander has maintained its dividend at around
60 cents a share right through the financial crisis. The payouts, he argues, reflect an old-
fashioned desire to be a steady income source for investors particularly the banks 3.3
million small private shareholders, many of whom are also bank customers.
But there is a second big driver for the dividend and also another example of the potentialconflict of interest that comes with the Botns dominance at Santander. In May, the family
took a 15.5m cash dividend on their shareholding, with a further 1.9m paid out in stock. A
clutch of wealthy family friends, who are among the largest individual shareholders, also
value the payouts. According to people who know the family well, they rely on the flow of
dividends for much of the income that supports their lavish lifestyles. There have also been
debts to service. As Santanders share price has fallen amid the crisis, Botn and other family
members have bought close to 90m of shares, Bloomberg data show often with borrowed
money, people close to him say not to mention the burden of that 200m tax bill.
The ego that critics point to in Botn is also an overarching reason for the dividend strategy,
they say. The dividend policy is unsustainable, says one investment banker who knows the
chairman well. In his view, Botn would be well advised not to sustain it. The only real
reason he does it is to show he has cojones.
SUCCESSION CRISIS
Many of these issues remain annoyances and niggles for the time being. But as the banksunderperforming share price suggests, worse may lie ahead. There are three big risks which
excite progressive degrees of alarm among investors, and any of them could wreck the Botn
success story.
First, the regulatory threat. The recent 40bn bailout by European authorities might have
helped the countrys more troubled banks, but the EUs quid-pro-quo demand that bank
supervision should move from a national to a pan-eurozone level could prove costly for
Santander. Though the bank insists its capital position is strong, analysts at Barclays reckon
Botn might be forced to fill another black hole of up to 18bn as the relatively soft-touch
Bank of Spain regulators give way to a tougher European Central Bank.
Worse still, of course, would be a further deterioration in the Spanish economy and even, at
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the unlikely extreme, some form of sovereign default. House prices have already tumbled 50
per cent from their peak and unemployment has spiralled above 25 per cent. If the Spanish
government found itself unable to repay its debts, too, all of Santanders other troubles
would pale into insignificance. Over the past year, rather than reduce its risky exposure to
Spanish sovereign debt, Santander has actually increased its holdings of government bonds
from 24bn a year ago to 30bn lured by high yields and under pressure to help out the
Spanish state.
Combined and in the absence of deeper EU intervention that all distils down to one
simple equation: if Spain fails, Santander fails.
Yet more inevitable than any macroeconomic crisis is the threat posed to Santander by
Botns own mortality. Given his quarter-century of dominion, how Santander will adapt
when the chairman can no longer lead the bank is a pressing question but one that Botn
himself, much to investors frustration, always refuses to address when quizzed. His
supporters suggest he may want to stay in the job for another five years. Emilios father hadsuch an influence on him, says one friend, that 83 is the natural milestone that he will be
focused on. All the same, a succession plan will have to be put into action at some point. And
herein lies a problem redoubled because Alfredo Senz, the banks 70-year-old chief
executive, has been toying with retirement for years. Botns other key lieutenants the
Inciarte brothers are widely seen as too old (Matias) or too gung-ho (Juan). An earlier
favourite for the CEO job, Antnio Horta-Osrio, left Santander in a surprise defection to
Britains Lloyds Bank two years ago.
The only obvious remaining choice to succeed Botn his daughter Ana would preserve
dynastic control. But Ana, whose role heading the UK subsidiary was supposed to complete
her apprenticeship for the top job, has her hands full with a struggling business. Nearly two
years into her role, significant profit growth looks elusive and an acquisition that would have
turned Santander UK into an important small business bank has fallen apart. That in turn
makes a float of the UK operation seen as a prospective rubber stamp of Anas eligibility to
succeed her father look like a distant hope.
Botns dilemma comes down to this: he does not want to retire, yet failing to hand over thereins soon to his daughter could undermine family control of the bank. If Emilio dies in the
ob, says one associate, Ana may not have the level of backing internally to succeed him.
After decades of spectacular success, Emilio Botn and the multinational family firm he
created are showing signs of unravelling. He might head a dynasty of great bankers, shrewd
networkers and decent dealmakers. But even el presidente, powerful as he is, is not
omnipotent.
Patrick Jenkins is the FTs banking editor
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