Banco Santander of Spain is in advanced talks to acquire Sovereign Bancorp for about $2.5 billion, people briefed on the matter said, as another frantic weekend of talks heralded the next wave of banking consolidation.

Santander, which would gain a larger American presence with the deal, will probably pay around $3.81 a share, or where Sovereign’s shares closed Friday. Sovereign, a savings and loan, has been hobbled by bad mortgages during the housing slump.

As banks brace to report a new wave of losses in the third quarter, they are finding it very hard to raise money from private investors. Even stronger institutions, like Bank of America, have struggled to raise new funds.

Treasury Department officials are weighing plans to make direct investments in banks to help them weather the current storm. But weaker ones have already begun reaching out to potential acquirers. The National City Corporation, for example, put itself up for sale last week, people briefed on the situation said.

The talks at Sovereign, whose shares have plunged 77 percent over the last year, may be the latest sign of shotgun consolidation that is even bringing the thinning ranks of healthier European and Asian banks to the negotiating table.

Santander has been considered a logical white knight for Sovereign ever since it took a nearly 25 percent stake in the bank three years ago and filled three seats on its board.

By buying the remaining shares, Banco Santander would be able to put Sovereign on stronger financial footing. It also would reduce the chance that its original stake would be wiped out if Sovereign faltered.

While other Spanish banks are deluged by losses, Banco Santander has been one of the more robust players to emerge from the credit crisis. It steered clear of many of the problems tied to American subprime mortgages and other complex investments, and it is now seizing opportunities on the global stage. On Friday, it completed a purchase of Alliance & Leicester of Britain at a bargain-basement price of 1.3 billion pounds ($2.2 billion). It was also among the early bidders for Washington Mutual and Wachovia in the United States.

Sovereign, a Northeast regional bank based outside Philadelphia, has been battered during the housing crisis. After barreling into new markets in the southeastern and southwestern United States, it became swamped with mortgage and home-equity losses as home values in those regions collapsed.

Along with Banco Bilbao Vizcaya Argentaria, Banco Santander has been seeking a bigger foothold in fast-growing American markets like Florida, Texas and Arizona, which have strong ties to Latin America, where the bank also has expanded.

A marriage between Banco Santander and Banco Hispano in 1999 gave rise to the bank in its current form and gave it a large presence in Europe and Latin America. In 2004, Santander bought Abbey National of Britain for $15.6 billion.

Sovereign has also been hit hard by a large auto loan portfolio and big holdings of Fannie Mae and Freddie Mac preferred stock, which were effectively wiped out when the government placed the companies in receivership. As a result, it has sharply pulled back from making new loans.

(Source: NY Times)