Sources said on Sunday that Swiss authorities are looking at imposing losses on Credit Suisse bondholders as part of a rescue of the bank. European regulators are apprehensive about such a move, as it is believed to have a negative impact on investor confidence elsewhere in Europe's financial sector.
The final decision was not taken, and the terms could still change, according to the sources.
If Credit Suisse were torn down and not taken over by UBS, losses on bondholders may need to be larger, according to one of the sources. Before financial markets reopen on Monday, authorities are trying to engineer a takeover of Credit Suisse by the UBS.
FINMA, the Swiss regulator, did not respond to a request for comment. Credit Suisse and UBS didn't want to say anything.
Some bond investors encouraged on Sunday by a report in the Financial Times that UBS had offered up to US $1 billion to buy its rival, although there is no guarantee that a deal with UBS will be reached.
One investor said that the price of one of the Credit Suisse's Additional Tier 1 AT 1 bonds, a junior tranche of debt that slumped in price this week, rallied in limited trading after the report.
A US $1 billion deal would result in Credit Suisse shareholders getting a fraction of what their shares were worth on Friday.