Ailing Fiat's banks were meeting on Thursday to consider a spinoff and recapitalisation of its cash-burning car unit while Fiat's top executives prepared for talks with partner General Motors, Reuters reported.

Citing sources, Reuters said Fiat and the banks are mulling a plan to split the car unit, which is believed to have lost about 1.2 billion euros last year, from Fiat's other assets, which range from insurance to utilities, in a spinoff that could pave the way for pumping five billion euros of cash into the car unit.

According to Reuters, the chairman of Sanpaolo IMI, one of Fiat's major creditor banks and main shareholders, was quoted in Fiat-owned paper La Stampa as saying Fiat should spin off its car division, list it on the bourse and "do it fast".

Reuters said moves towards this end could be taken in the next two days when Fiat chairman Paolo Fresco and chief executive Alessandro Barberis are due to talk to their counterparts at GM, which is likely to be asked to contribute to any capital increase.

According to Reuters, the Financial Times said on Thursday that Fiat and its banks were eager to alter the GM "put" option to take a majority shareholding, which could be a key bargaining chip when asking GM to stump up more money.

Reuters noted that ratings agencies have said the GM option is a key remaining debt support for Fiat, whose long-term debt rating was cut to "junk" or non-investment grade by Moody's late last year.

According to Reuters, GM has declined to confirm or deny the meeting with Fiat executives, saying only that the two sides meet frequently to discuss operational aspects of their partnership.

According to Reuters, as Fiat's banks meet in Milan, financier Roberto Colaninno was slated to deliver an alternative plan to Fiat's board in Turin, even though two of its most important members are out of the country.

Colaninno, famed for his $65 billion takeover of Telecom Italia in 1999, is angling for the top job at Fiat in return for investing up to one billion euros in the group, Reuters noted.

Meanwhile, financial sources have told Reuters that Colaninno's former Telecom Italia business partner Emilio Gnutti has convinced his partners in merchant bank Hopa, which include the family holding company of Prime Minister Silvio Berlusconi, to help fund a Fiat recapitalisation though Gnutti is not seeking a management role.

According to Reuters the newspaper Il Sole 24 Ore reported on Thursday that Umberto Agnelli, younger brother of ailing honorary chairman Gianni Agnelli, was drawing up yet another alternative plan, which could see other institutional investors and the market investing more in Fiat.