RETIREMENT-RESIGNATION AND TRANSITION AGREEMENT

Exhibit 10.1

RETIREMENT — RESIGNATION AND TRANSITION AGREEMENT

          This RETIREMENT—RESIGNATION AND TRANSITION AGREEMENT (“Agreement”) is by and between Sovereign Bancorp, Inc. (“Bancorp”), a Pennsylvania corporation, and Sovereign Bank (“Bank,” and, collectively, with Bancorp, “Sovereign”), a Federal Savings Bank organized and existing under the laws of the United States, and Jay S. Sidhu (“Executive”), an individual residing in the Commonwealth of Pennsylvania. This Agreement is entered into as of October 10, 2006.

           WHEREAS , Executive has been employed by Bancorp in the capacity of President and Chief Executive Officer and by Bank in the capacity of Chief Executive Officer under the Employment Agreement dated March 1, 1997 (the “Employment Agreement”); and

           WHEREAS , Executive has also served as Chairman of the Boards of Directors of Bancorp and Bank (the “Boards”) and as an officer and director of various direct and indirect subsidiaries and controlled affiliates (collectively, the “Subsidiaries”) of Bancorp and Bank; and

           WHEREAS , Executive has announced Executive’s intention to resign and retire from Sovereign and the Subsidiaries; and

           WHEREAS , Sovereign desires to provide for the orderly separation of Executive and a smooth transition of the position of Chief Executive Officer; and

           WHEREAS , Sovereign believes it is in the best interests of Sovereign and all of its stakeholders to enter into this Agreement.

           NOW THEREFORE , in consideration of the premises and the covenants herein, the sufficiency of which is hereby acknowledged, Executive, Bancorp and Bank agree as follows:

     1.  Resignation and Retirement; Board Position . The parties acknowledge that, effective on October 10, 2006 (the “Resignation and Retirement Date”), Executive resigned and retired (i) as an employee of Bancorp and as its President and Chief Executive Officer, (ii) as an employee of Bank and as its Chief Executive Officer, (iii) from all other positions Executive currently holds as an employee, officer and director (except as set forth below) of Sovereign and

each of its Subsidiaries, and (iv) from Executive’s position as a director of Banco Santander Central Hispano, S.A., effective December 31, 2006. Executive shall continue as non-executive Chairman and a director of Bancorp through December 31, 2006 (the “Departure Date”) and shall have such duties as shall be prescribed by the Bancorp Board from time to time and thereafter as Special Advisor to the Bancorp Board through October 10, 2009 and shall have such duties as shall be prescribed by the Bancorp Board from time to time. As non-Executive Chairman, Executive’s duties shall be limited to (i) presiding as Chairman over meetings of Board of Directors of Bancorp and the Bank, (ii) at the direction of both co-lead directors, calling special meetings of the Boards of Directors of Bancorp and the Bank or committees thereof, and (iii) at the direction of both co-lead directors, establishing agendas for meetings of the Boards of Directors of Bancorp and the Bank or committees thereof. The Executive agrees that, the bylaws of Bancorp and the Bank notwithstanding, he will not engage in any other acts as Chairman unless so directed by Board action, including but not limited to either supervising or directing the Chief Executive Officer or performing the duties of Chief Executive Officer if such officer is legally incapable of performing such duties.

     2.  Consulting to Board of Directors . For a period of three (3) years after the Resignation and Retirement Date (the “Transition Period”), Executive shall consult with Bancorp Board when and as reasonably requested by the Bancorp Board or its designee, as follows:

     (a)  Duration . Executive’s duties shall not exceed 40 hours per month of consultation by Executive, which shall be performed at such times and from such locations that are mutually acceptable to Executive and the Bancorp Board.

     (b)  Duties . Executive’s duties shall include: (i) representing Sovereign with key community, civic, charitable and industry constituents, (ii) consulting with the Bancorp Board and its officers, as and when requested by the Bancorp Board, regarding corporate development strategy and mergers and acquisitions, and (iii) assisting Bancorp with respect to customer relations, bank regulatory and related matters. During the Transition Period, in connection with the performance of such services, Executive shall have the title of Special Advisor to the Board of Directors.

     (c)  Manner of Performance . In connection with providing services hereunder, Executive shall comply in full with all applicable law, and rules and regulations and with

Sovereign’s Code of Conduct (including the following documents: (i) the Sovereign Bancorp, Inc. Code of Conduct and Ethics, (ii) the Sovereign Bancorp, Inc. Policy on Personal Securities Transactions, and (iii) the policies and procedures related to employment of Team Members by Sovereign or a Subsidiary set forth in the Sovereign Bank Team Member Handbook) during the Transition Period. Executive may engage in activities on Executive’s own behalf or on behalf of entities other than Sovereign or any Subsidiary, including, but not limited to, private equity firms or investment funds or hedge funds (subject to the restrictive covenants set forth in this Agreement, including those set forth in Sections 10 and 11), and may allocate Executive’s time between Executive’s obligations under this Agreement and such other activities in any manner Executive deems appropriate, so long as Executive’s obligations under this Agreement are satisfied.

     (d)  Status as Independent Contractor . During the Transition Period, Sovereign will retain Executive in the capacity of an independent contractor and not as an employee or agent of Sovereign or any Subsidiary and neither will represent otherwise to any third party.

     (e)  Compensation as Consultant . In consideration for Executive’s services as a consultant to the Bancorp Board, Bancorp shall make the following payments to, and distributions for the benefit of, Executive:

          (i) Consultant Fees . During the Transition Period, Sovereign shall pay Executive at the rate of $40,000 per month for services performed as a consultant, payable in arrears on the 10th day of each month beginning November 10, 2006. For the avoidance of doubt, such compensation shall be in addition to any compensation to which Executive is entitled for his services as a director of Bancorp. At Executive’s election and written notice to Sovereign, Executive may terminate the services as a consultant and as of such termination date (i) the monthly payments described above shall cease and (ii) Executive shall be relieved of his obligations under the Sovereign Bancorp, Inc. Policy on Personal Securities Transactions and on any other restriction on his ability to buy or sell Sovereign securities.

          (ii) Expenses . Sovereign shall reimburse Executive, in accordance with Sovereign’s then-current travel and business expense policy, for all reasonable out-of-pocket expenses incurred by him in connection with the performance of Executive’s services during the Transition Period within thirty (30) days following Executive’s delivery of an accounting of those expenses to Sovereign.

     3.  Compensation Until the Resignation and Retirement Date . Executive shall continue to receive Executive’s current salary paid in the normal course, and other compensation and benefits to which Executive is entitled in Executive’s current position (but not including any

accrued but unpaid bonus) with Sovereign to the Resignation and Retirement Date. On the Resignation and Retirement Date, Executive shall also be compensated for all earned but unused vacation, if any, consistent with Sovereign’s vacation policies.

     4.  Payments and Benefits Due To Resignation and Retirement .

          (a) Severance Payment . Pursuant to the terms of the Employment Agreement, Sovereign shall make a lump sum cash payment to Executive in the amount of $10,544,008 which equals to the present value (based on an annual interest rate of 5.5%) of $12,084,167 paid in 60 monthly installments, which the parties agree is the amount due under the Employment Agreement, which amount shall be paid within five business days of the Resignation and Retirement Date.

          (b) Medical Benefits . For a period of sixty (60) months following the Resignation and Retirement Date, the Executive shall receive a continuation of all life, disability, and medical insurance and other normal benefits in effect with respect to Executive and dependents at any time during the two (2) years prior to Executive’s Resignation and Retirement Date, or, if Sovereign cannot provide such benefits because the Executive is no longer an employee, a dollar amount equal to the cost to the Executive of obtaining such benefits (or substantially similar benefits). Notwithstanding the preceding sentence, however, Sovereign shall not be required to continue to provide any specific benefit in the event the Executive secures substantially similar coverage through other employment (at the employer’s cost). Executive agrees to promptly advise Sovereign in the event the provisions of the preceding sentence become operable.

          (c) Equity Grants and Special Payment . At various times during Executive’s employment, Executive was granted options to purchase Sovereign common stock, awarded restricted stock, and awarded performance units (the “Equity Grants”) as set forth on the records of Sovereign. In recognition of Executive’s role in building Sovereign and in consideration for Executive’s resignation from the Boards and from the position as a director of Banco Santander Central Hispano, S.A., an accord and satisfaction of his Employment Agreement and for a number of further other concessions and accommodations made by Executive, Sovereign agrees, that (i) Executive’s resignation from employment on the Resignation and Retirement Date will be treated as a retirement for purposes of the Equity Grants and (ii) Sovereign will take all action

necessary to assure that no such Equity Grant expires upon resignation and retirement and to accelerate the vesting of any unvested portion of Equity Grants with respect to all Equity Grants other than the awards of 26,686 shares of restricted stock under the Sovereign Bancorp, Inc. 2004 Broad-Based Stock Incentive Plan. All other terms and provisions of the Equity Grants as set forth in the applicable agreements reflecting those Equity Grants will remain in full force and effect. To the extent any of the foregoing actions require the amendment of outstanding agreements for the Equity Grants, by execution of this Agreement, Executive consents to such amendments. Pursuant to this Section 6(c), Executive shall also be paid a lump sum cash payment of $1,000,000, which amount shall be paid within five days of the Resignation and Retirement Date.

          (d) Supplemental Retirement Plans . Executive and Sovereign acknowledge and agree: (i) that Executive is fully vested under the Sovereign Bancorp, Inc. Enhanced Executive Retirement Plan (“EERP”) and the Sovereign Bancorp, Inc. Supplemental Executive Retirement Plan (“SERP”) (collectively the “Supplemental Plans”); (ii) no additional benefits shall accrue under the Supplemental Plans or under the pension make-whole provision set forth in Section 6(c) of the Employment Agreement after the Resignation and Retirement Date; (iii) that current present value of all benefits accrued under Section 6(c) of the Employment Agreement and the Supplemental Plans (under the actuarial assumptions used consistently under the Supplemental Plans), as of the Resignation and Retirement Date is $22,448,671; and (iv) that, subject to the provisions of Section 27 hereof, all benefits accrued under the Supplemental Plans shall be paid to him in the form of a single payment on or before November 30, 2006. Executive acknowledges and agrees that no other benefits shall accrue to him and no other payments shall be made to him with respect to the Supplemental Plans.

          (e) Deferred Compensation Plans . With respect to the Sovereign Bancorp, Inc. Nonqualified Deferred Compensation Plan (frozen December 31, 1999) and the Bonus Recognition and Retention Program (collectively the “Deferred Comp. Plans”), Executive and Sovereign acknowledge and agree: (i) that Executive is fully vested under the Deferred Comp Plans; (ii) that no additional amounts shall be credited to Executive’s account under the Deferred Comp Plans; (iii) that distributions shall be made in accordance with the terms of the Deferred Comp Plans. Executive acknowledges and agrees that no other amounts shall accrue to him under the Deferred Comp Plans.

          (f) Retirement Plan . Executive and Sovereign acknowledge and agree that Executive is a participant in the Sovereign Bancorp, Inc. Retirement Plan, and that Executive’s benefits under such plan shall be determined in accordance with the terms and conditions of such plan and any election related thereto.

          (g) No Additional Benefits . Executive acknowledges and agrees that except as expressly provided herein, Executive’s coverage under any benefit plan, program, policy or arrangement sponsored or maintained by Sovereign shall cease and be terminated as of the Resignation and Retirement Date. Executive further acknowledges and agrees that no payment made by Sovereign pursuant hereto is subject to any employer matching obligation or any other employer contribution under any benefit or deferred compensation plan, whether or not any such payment is characterized as wages or compensation.

     5.  Death or Disability . In the event that Executive dies or becomes disabled prior to the Resignation and Retirement Date, Executive’s heirs, representatives or Executive’s estate shall be entitled to the compensation and benefits described in Section 4.

     6.  Director Compensation . From and after the Resignation and Retirement Date and for the period through and including the Departure Date, Executive shall be paid for Executive’s services as a director on the Bancorp Board in a lump sum cash payment equal to $36,000 payable on the Departure Date.

     7.  Release . Executive shall execute the release attached hereto as Exhibit A on the Resignation and Retirement Date (the “Release”).

     8.  No Admissions; No Knowledge of Claim . By entering into this Agreement, neither Sovereign nor Executive in any way admits that it or Executive has treated the other unlawfully or wrongfully in any way. Neither this Agreement, nor the implementation thereof, shall be construed to be, or shall be admi