Banco Popolare SC is in advanced merger talks with Banca Popolare di Milano Scarl, and the two Italian cooperative lenders are seeking a preliminary agreement by mid-February, people with knowledge of their plans said.

The banks are working on a combination that would leave the top job to Giuseppe Castagna, who heads the Milan bank, two people said. While the deal could still fall through, the talks have intensified in recent weeks, with the focus mainly on governance, they said.

Banco Popolare Chief Executive Officer Pier Francesco Saviotti would become the chairman of the executive committee of the combined entity, while Chairman Carlo Fratta Pasini would keep his role, the people said. Operations would be based in Milan, with the legal headquarters in Verona, they said, asking to not be identified because the talks are private.

The two lenders led the Italian benchmark FTSE MIB early Wednesday after Reuters reported progress in the talks late Tuesday. Banco Popolare, Italy’s fourth-largest bank, rose as much as 8.8 percent to 12.14 euros and Banca Popolare di Milano climbed 7.3 percent to 91 cents.

A law adopted in March requires popolari lenders with assets of at least 8 billion euros ($8.7 billion) to abolish restrictions on ownership and voting rights - both main obstacles to consolidation among Italy’s community-oriented banks.

Popolare di Milano, which held separate talks with Unione di Banche Italiane SpA in December, is leaning toward a merger with Banco Popolare because it would be more of a deal among equals, according to three people. Top managers of Bergamo-based UBI plan to meet executives of Popolare di Milano this week in an effort to revive those discussions, one of people said.

Officials for the three banks declined to comment.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE