Italy's two largest banks, UniCredit and Intesa Sanpaolo, are teaming up with US private equity firm Kohlberg Kravis Roberts to pool some of their bad loans into a vehicle that will provide fresh capital for the struggling companies, the Financial Times reported.

The preliminary agreement, which also involves restructuring adviser Alvarez & Marsal, will be announced on Tuesday, the paper said on its website.

The announcement is likely to say the four companies have signed a memorandum of understanding but are still working out many details, FT said.

The vehicle could house several billion euros of loans, the paper said.

The two Italian banks are considering how much of their bad loan portfolio to transfer into the vehicle and whether to contribute fresh funds themselves, the FT reported.

KKR declined to comment on the article.

UniCredit, Intesa, and Alvarez & Marsal could not immediately be reached for comment outside regular working hours.

Reuters