Exclusive: Swiss authorities mull imposing losses on Credit Suisse bondholders

By John O’Donnell

FRANKFURT (Reuters) – Swiss authorities are examining imposing losses on Credit Suisse bondholders as part of a rescue of the bank, two sources with knowledge of the matter said on Sunday.

However, European regulators are apprehensive about such a move for fear that it could hit investor confidence elsewhere in Europe’s financial sector, the sources said, speaking on the condition of anonymity. 

A final decision, however, had not been taken and the terms could still change, according to the sources.

Losses on bondholders could need to be larger if Credit Suisse were wound down rather than if it were taken over by UBS, one of the sources said. Authorities are trying to engineer a UBS takeover of Credit Suisse before financial markets reopen on Monday.

FINMA, the Swiss regulator, did not immediately respond to a request for comment. Credit Suisse and UBS declined to comment.

Despite the prospect of losses, bond investors are hopeful that a takeover by UBS would mean their Additional Tier 1 bonds are converted into UBS stock and more of their money protected, two bondholders told Reuters.

The price of Credit Suisse’s Additional Tier 1 bonds jumped in limited Sunday trading after the Financial Times reported that UBS had offered $1 billion to buy its rival, one of the investors said.

Credit Suisse bonds plunged into distressed territory at or below 30 cents on the dollar this week as investors worried about the health of the bank even after the Swiss National Bank provided the lender with a $54 billion emergency loan.

(Reporting by John O’Donnell and Chiara Elisei; Additional reporting by Elisa Martinuzzi; Writing by Tommy Reggiori Wilkes; Editing by Paritosh Bansal and Hugh Lawson)