Insults fly as Santander approves Sovereign issue

MADRID, Jan 26 (Reuters) - Santander (SAN.MC) directors and shareholders traded insults on Monday at an extraordinary general assembly that approved a share issue to buy U.S. unit Sovereign Bancorp Inc. SOV.N.

Santander executives were left red faced after one of them forgot to turn his microphone off and was heard insulting shareholders after heated questions from the floor about Santander's purchase of U.S. unit Sovereign and its exposure to the alleged Bernard Madoff fraud.

"Bastards. Listen to them clapping," said one unidentifiable executive, referring to shareholders applauding criticism of Santander's issue of shares to buy the U.S. unit.

Nonetheless, shareholders later approved the 177.4 million share capital hike, equivalent to 2.2 percent of capital, to buy the 76 percent of Sovereign it does not already own.

"The full acquisition of Sovereign will allow us to increase our geographical diversification and will provide a fresh impetus for expanding our commercial franchise ... in the best area in the United States," Chairman Emilio Botin said.

A Santander spokesman declined to comment on the executive's words.

Shareholders also criticised Santander board members over the bank's 2.3 billion euro exposure to accused financial swindler Madoff through the bank's alternative investment fund manager Optimal.

One executive demanded security eject a shareholder from the hall after he launched an abusive tirade about Optimal's losses.

Botin's almost-flawless reputation as a titan of Spanish business has been tarnished by Santander's exposure to the alleged worldwide Madoff fraud.