Santander renews merger talks with M&T: report

MADRID (Reuters) - Spain's Santander has renewed talks to merge its U.S. operations with New York regional lender M&T Bank Corp, the Financial Times reported on Tuesday, as it resumes its pursuit of the American market.

Talks about merging Santander's Sovereign Bank into M&T stalled in May over who would control the enlarged business, sources told Reuters.

However, the two banks have again started exploring a deal and have sounded out the views of regulators, including the Federal Reserve, the FT said, citing people familiar with the matter.

Santander declined to comment.

The bank has made a string of purchases this year, including the buyout of its Mexican division and Royal Bank of Scotland's

UK branches, to bulk up its overseas markets and offset weak business in Spain after a severe recession.

Santander's ambitions to expand its U.S. presence are no secret, and the bank wants to ensure control over the positions it acquires. It bought 25 percent of Sovereign in 2006 for $3.3 billion before buying the remainder of the troubled bank in early 2009.

"We don't believe the Spanish group to be willing to become a minority shareholder in the merged (M&T) entity," said BPI analysts in a note to clients.

"We'd attribute a higher probability of Santander launching a bid over M&T than losing control over its US operations," the analysts said.

Under the terms for the M&T deal discussed last spring, M&T would have acquired Sovereign in a stock-based transaction, creating a business with some $150 billion in assets and more than 1,500 branches in the north-east of the United States.

Santander would have taken a stake in the combined entity and bought a 22.5 percent M&T stake held by Allied Irish Banks, and may have injected cash in the enlarged bank, the FT said.

AIB also declined to comment on the report.

By 1021 GMT, Santander's shares were up 1.0 percent at 9.54 euros, broadly in line with gains on the DJ Stoxx European bank index and the Madrid stock exchange.

(Additional reporting by Robert Hetz in Madrid and Carmel Crimmins in Dublin; Editing by David Cowell and Hans Peters)