* Former UBS banker Orcel files lawsuit in Madrid court
* Bank dropped CEO job offer and faces long legal battle
* Santander has until end of this week to reply (Adds details of Orcel's offer letter and court battle)
By Jesús Aguado and Pamela Barbaglia
MADRID/LONDON, July 23 (Reuters) - Santander said it would fight a 100 million euro ($112 million) lawsuit being brought by Italian banker Andrea Orcel after it withdrew an offer to make him its chief executive earlier this year.
Santander offered Orcel, one of Europe's highest profile bankers, the role but then changed its mind in January, saying it could not meet his pay demands.
Former UBS banker Orcel has filed a lawsuit in Madrid with the help of law firm De Carlos Remon, claiming breach of contract.
His claims are based on a four-page letter - signed by Santander's general secretary Jaime Perez Renovales in September - in which the bank offered him the job along with a stock and bonus package to compensate for deferred pay he risked losing by quitting UBS, a source close to the Italian banker told Reuters.
While Orcel's lawyers say the letter is legally binding, Santander argues that Orcel wasn't formally hired.
The package which was mentioned in the letter consisted of 35 million euros of Santander's shares and a 17 million euro bonus and would only be paid if Orcel failed to recoup all or part of his deferred pay from UBS, the source said.
Santander, advised by law firm Uría Menéndez, has until the end of this week to draft a formal response.
Santander Chairman Ana Botin referred the question to Renovales when it was brought up during an extraordinary general meeting in the northern Spanish city of Santander.
"The bank has acted with total transparency and will present and defend its position before the courts," Renovales said.
"We are going to prove that the reasons given on the day to annul the appointment respond to reality and that the necessary conditions were not met for his appointment and hiring to be effective," he added.
Santander has said the cost of compensating Orcel for the deferred awards he had earned over the past seven years at UBS and other benefits would be significantly above the board's original expectations.
Santander fears public outrage in a country which is still recovering from one of Europe's largest banking crisis and where executive salaries are far from matching those in London and New York.
While its balance sheet and share price are unlikely to be affected by a lengthy and draining lawsuit, the bank might feel uncomfortable at the level of public attention.
"The bank's decision, although difficult, was the best for the group, and for its shareholders, and a rigorous governance process took place," Renovales said on Tuesday.
Santander reported an 18% fall in quarterly net profit on Tuesday hurt by one-off restructuring costs from its acquisition of Banco Popular and a weak performance in Britain.
The lawsuit is expected to be handled by Madrid's court Juzgado de Primera Instancia which could take more than 18 months to reach a verdict, several lawyers told Reuters.
If any of the parties appeals, the case would likely move to Madrid's Audiencia Provincial where deliberations could take another 18 months.
In the event of a new appeal and if it is considered necessary for the Spanish judiciary system to set a precedent on court rulings, Spain's Supreme Court would step in. It could take three to four years to come up with a final decision. ($1 = 0.8944 euros) (Reporting by Jesús Aguado and Pamela Barbaglia; additional reporting by Andres González; Editing by Paul Day and Keith Weir)