Sovereign Bancorp Inc., the savings and loan that agreed to be acquired by Spain's Banco Santander SA, will take a $2 billion writedown and get a new chief executive officer, Santander Chairman Emilio Botin said.

Gabriel Jaramillo, a former head of Santander's Brazilian unit, will lead Sovereign, Botin said today at a meeting of the Spanish bank's shareholders in Santander, Spain. Santander will have "an initial write-off" of $2 billion at Sovereign, which will make a profit of $750 million by 2011, Botin said.

Santander shareholders approved the issue of 177 million new shares, equivalent to about 2.2 percent of share capital, to pay for the acquisition of Philadelphia-based Sovereign. The capital increase is the third since September, following a sale equivalent to 2.2 percent of capital to buy the U.K.'s Alliance & Leicester Plc and a 7.2 billion-euro ($9.3 billion) rights offer completed Nov. 28, equivalent to 25 percent of capital.

"Shareholder tolerance for these capital increases is clearly reaching its limit, so in that sense you could say it's kind of a deal too far," said Andrea Williams of Royal London Asset Management in London, who holds Santander shares.

Santander Chief Financial Officer Antonio Alvarez said in October the bank would reduce Sovereign's risk-weighted assets by $10 billion by the end of 2009 from $61 billion, trimming securities investments and "managing down" books of loans such as those to large corporations and for commercial real estate.

Earnings Growth

Sovereign will close 2009 with profit of less than $100 million and will increase it to $250 million in 2010, Ignacio Benjumea, Santander's board secretary, said in response to a shareholder question. He said Santander's 2008 earnings wouldn't include any writedown for Sovereign.

Botin said Spain's largest bank will present "magnificent"

results on Feb. 5, without providing financial details. He said the bank had "not turned off the credit tap."

"The news today from Santander has been quite positive,"

said Hans-Martin Buhlmann, president of Vereinigung Institutionelle Privatanleger, a Cologne, Germany-based company representing the corporate governance interests of the holders of

15 million shares at today's meeting.

Regarding the alleged fraud by Bernard Madoff, Botin said the Santander is considering legal actions. The bank said Dec. 14 its clients had 2.33 billion euros ($3 billion) at risk from the case. Madoff's New York-based firm collapsed in December after he told his sons it was a $50 billion Ponzi scheme, according to a complaint filed by the Federal Bureau of Investigation.

Madoff, Sovereign

Botin faced repeated questions from shareholders over Madoff. Referring to Madoff and other cases where clients might have lost faith in the bank, one shareholder, Juan Maria Lopez- Uranga, told Botin he considered him an "idol" but that Santander faced disaster if it failed to respond to its duty to provide clients with the right service and products.

Tension with investors was present from the start of the meeting. Javier Soto was the first shareholder to put a question to the board, and in his comments he described the purchase of Sovereign as a "poor operation" for the bank. His words were followed by claps and cheers from other shareholders at the meeting. Botin described them as "cabrones," or bastards in Spanish, without knowing his microphone was on.

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