Two of the largest banks in Italy, namely UniCredit and Intesa Sanpaolo, have entered into an agreement with US firm Kohlberg Kravis Roberts to put together bad loans accumulated by the bank into an entity that would provide fresh capital for financially beleaguered firms.

According to the Financial Times report quoted by Reuters, the agreement would also involve the restructuring of financial advisory firm Alvarez and Marsal. This restructuring would be formalized by Monday, as announced in the firm's website. 

Overall, a formal announcement as to the agreement forged between the four companies is still to be made. There are still many details to be ironed out to make the whole system work to be able to house several billions of Euro worth of loans. 

The two Italian banks are still considering how much of their loan portfolio would be transferred to the entity to be created. The other option would be for the banks to fund the loans themselves, according to the Financial Times report.

UniCredit CEO Federico Ghizzoni had confirmed the meetings with Intesa and KKR at the beginning of the year. He said, "It's a project concerning (loans to) restructured companies so it's not a bad bank. There is also the possibility of injecting equity into these companies." 

In its report last September 2013, Intesa and UniCredit accounted for nearly EUR10.6 billion or USD14.5 billion in gross restructured loans. 

One of the major issues concerning this process is the price of the assets whent transferred. One source, who spoke on condition of anonymity, said, "The real issue is the price at which the assets are transferred tot he bad bank. If the price reflects the losses then there is no problem because the losses will be then absorbed by the transferring bank."

KKR had declined to make a comment on the matter. Intesa, as well as Alvarez & Marsal, could not be reached for comment beyond working hours.