* Giuseppe Castagna's appointment to be formalised Jan. 21
* Appointment to allow bank to proceed with capital hike
* Unclear if Castagna will restart controversial reform
By Andrea Mandala
MILAN, Jan 17 (Reuters) - Italy's Banca Popolare di Milano chose banking veteran Giuseppe Castagna as its new chief executive on Friday, filling a two-month power vacuum that has delayed a much-needed capital increase.
After a long meeting, the bank said its supervisory board had named a new management board, including Castagna. The chief executive will be formally appointed on Jan. 21, the bank said.
Appointing a new chief will allow the cooperative lender to proceed with a planned 500 million euro ($680 million) capital increase it needs ahead of eurozone-wide bank health checks by the European Central Bank later this year.
There was a break during the supervisory board's meeting on Friday evening to allow discussions over remuneration, a board member who asked not to be named said as he left the meeting.
Castagna, a former executive at Intesa Sanpaolo, Italy's largest bank by assets, has been expected to take the helm since soon after former CEO Piero Montani quit the bank in late October following a clash with its supervisory board.
Montani's departure forced the mid-sized lender to delay the capital increase and prompted Standard & Poor's and Fitch to cut their ratings of its debt last year as it hampered the chances of governance reform.
It is unclear, however, if Castagna will restart corporate governance reform. The topic is highly controversial within the bank, whose chairman wants to preserve the cooperative model.
The former CEO and his management team had backed a plan to remove the one shareholder-one vote structure at Pop Milano and turn it into a joint-stock company. But the plan was put on hold because of strong opposition from unions and employees, who are powerful on the supervisory board.
"The appointment of Castagna ends a long period of uncertainty regarding the bank's management team," said Vincenzo Longo, credit analyst at broker IG, adding the power vacuum had weighed on the stock at the end of last year.
Media speculation about the appointment lifted shares in Popolare Milano at the beginning of this year. The share price touched an 8-month peak of 0.55 euros on Thursday, and ended the week at 0.535.
"The stock can continue to rise provided the new management team resumes plans to reform the ownership structure at the bank," said Longo.
The bank's supervisory board has also chosen Mario Anolli, Davide Croff, Giorgio Girelli, Paola De Martini to sit on the management board. ($1 = 0.7352 euros) (Additional reporting by Elisa Anzolin and Francesca Landini, writing by Francesca Landini; Editing by Mark Trevelyan)