M&T Bank Corp. was engaged in “serious” discussions with Spanish banking behemoth Banco Santander SA about acquiring Santander’s U. S. subsidiary, but talks broke down over M&T’s concerns about which bank would be in charge, sources said Wednesday.

A merger of Buffalo-based M&Tand Santander’s Sovereign Bancorp operation would have doubled M&T’s size and created a regional giant stretching from New Hampshire to Virginia.

But negotiations, which had reportedly reached “advanced stages” after weeks of talks, collapsed over disagreements about control and concerns about shareholder value, according to a source familiar with the discussions and a report in the Financial Times.

Any loss of M&T’s autonomy could be a threat to Western New York, where the bank employs more than 5,000 and is a major force in the business and civic communities.

Final details, including price, had not been nailed down. But sources said a deal could still happen in the future if either side changes its stance.

M&T spokesman C. Michael Zabel said the bank does not comment on rumors or speculation. A Santander spokesman could not be reached to comment.

However, the source familiar with the discussions said that “at no point” did the talks involve Santander buying Buffalo-based M&T.

Rather, plans called for Santander to sell its Sovereign Bancorp unit to M&T and then to receive M&T stock in

return. In addition, Santander would also acquire the 22.5 percent stake in M&T that Allied Irish Banks PLC of Dublin is trying to sell to comply with an Irish government order.

That would have resolved questions over how AIB can unload that enormous stake without disrupting M&T. And it would have made Madridbased Santander, one of the world’s largest banks, the biggest shareholder in M&T, although specifics of just how much Santander would own in the end had not been worked out.

Such a relationship could have been similar to what M&T and AIB have had since 2003, when M&T bought Baltimorebased Allfirst Financial from AIB in exchange for the M&T stock. AIB also got four seats on M&T’s board.

Both banks have touted their “partnership” since then, with AIB profiting from the success of its U. S. investment while M&T benefited from AIB’s advice and support. And it likely would have continued had AIB not run into so much trouble elsewhere that it required a government bailout.

The problem with the recent negotiations was that Santander, and particularly its acquisitive and ambitious chairman, Emilio Botin, apparently did not want to remain passive as AIB did, but rather wanted eventually to control the new entity as its U. S. arm, including M&T.

That fits with Santander’s aggressive growth globally in recent years. It has spent more than $60 billion on acquisitions in Spain, Latin America, Europe and the United States. It also follows its past efforts to gain a beachhead in the United States through its initial investment in and then outright acquisition of Sovereign, with the intention of further expansion.

By contrast, M&T has stated its desire to remain independent, and to pursue the strategy and operating style that have brought it this far. While always open to any merger offer, executives have often cited their belief that they can do a better job managing the bank than someone else. And that view hasn’t changed, the source familiar with the discussions said.

Still, the failure of the talks, at least for now, may represent a disappointment for both M&T and Santander.

A deal would likely have catapulted M&T into the ranks of the top 10 U. S. banks by assets, while giving it the financial backing of a global heavy-hitter. And it might have further boosted M&T’s image internationally as a “go-to” company for running a U. S. bank.

The two U. S. banks are similar in size — M&T has $69 billion in assets and 778 branches, while Wyomissing, Pa.-based Sovereign has $74 billion and 750 branches — but with virtually no overlap. M&T is centered in New York, central Pennsylvania, Maryland, Virginia and Washington, D. C., while Sovereign is concentrated in New England, eastern Pennsylvania and New Jersey.

But Sovereign is much weaker than M&T after struggling with heavy loan and investment losses over the last two years. That’s why M&T could afford to buy it despite the similar size.

Indeed, for Santander, a successful deal could remove a throbbing headache. Once a high-flying and fast-growing savings bank company, Sovereign has lost several billion dollars from bad loans and investments, with problems not only in residential mortgages, but also in its commercial real estate, multifamily and home-equity loan portfolios.

It set aside $3 billion for loan losses in the last two years, wrote off $1.7 billion as uncollectible, and reported a profit of $48.6 million last year after a net loss of $2.1 billion in 2008. Returns on assets and equity are abysmally low by industry standards, and 4.4 percent of its loans are behind.

By contrast, M&T is one of the only large banks in the country to have maintained profitability and kept its dividend throughout the financial crisis, even as it has continued its expansion through acquisitions. And the conservatively run bank is highly regarded on Wall Street.

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