M&T Bank Corp. is weighing giving up a majority stake to Banco Santander SA through a merger with the Spanish bank's U.S. unit while retaining some elements of control, said people with knowledge of the matter.

The banks are in informal talks with the Federal Reserve to gauge how such a deal would be received, and expect to hear back within two weeks, said the people, who spoke on condition of anonymity because the talks are private. Many of the terms, including the timing of when Santander would get the majority stake, have yet to be worked out, the people said.

An agreement would allow Santander to put its Sovereign Bank unit, which had pretax losses for the past three years, under the management of M&T Chief Executive Officer Robert Wilmers and his team, the people said.

M&T and Santander have been in intermittent merger talks for months. The transaction would probably be structured as a stock merger, in which Santander trades its holding of the Sovereign unit for shares in M&T, said one of the people. Santander may start with a minority holding in M&T with an option that allows it to increase ownership to more than 50% within a few years, the people said.

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