(Bloomberg) -- Risky Credit Suisse Group AG bonds that are set to be written down to zero by regulators were being quoted at prices of a few cents on the dollar on Monday, according to people with knowledge of the matter. 

Dealers including JPMorgan Chase & Co. and Morgan Stanley are willing to buy risky Credit Suisse debt known as additional tier 1 bonds, or AT1s, for somewhere around 2 cents on the dollar and sell somewhere around 5 cents as of early afternoon on Monday in New York, according to the people. The Swiss bank said on Sunday that the bonds would be written down to zero as a condition of the rescue of the bank.   

Other banks, including BNP Paribas SA, BTIG, Jefferies Financial Group Inc., as well as JPMorgan and Morgan Stanley, are also getting involved, according to the people, who asked not to be identified discussing private trades. Goldman Sachs Group Inc. traders were preparing to take bids on claims against the bonds in messages circulated late Sunday, according to separate people with knowledge of the matter. 

Read more: Credit Suisse Collapse Reveals Ugly Truths for Investors (1)

The AT1 securities haven’t yet been zeroed out by regulators because Credit Suisse’s emergency sale to UBS Group AG hasn’t yet closed. So for now the securities are still bonds, but dealers are crafting terms of trading that would turn the instruments into claims on Credit Suisse when the debt does get written down to zero, according to traders.  

Representatives for JPMorgan and BTIG declined to comment. Spokespeople for BNP, Jefferies, and Morgan Stanley didn’t immediately reply to requests for comment.

Any market participants who buy the securities are looking at whether the bonds may have value amid litigation. Some investors believe if AT1s are being written down to zero, the bank’s equity should be as well. In this case, UBS agreed to buy the firm for around 3 billion francs in an all-share deal brokered by the Swiss government. 

“While the regulators clearly have the authority to wipe out the AT1s, there might be some hope that the deal will be modified to throw them a bone,” said portfolio manager Bill Zox at Brandywine Global Investment Management.

Credit Suisse’s bond documents specified that authorities have the authority to upend the usual rules of priority when imposing losses on investors, according to Bloomberg Intelligence. European Union and UK AT1s do not feature such language, BI wrote.  

AT1 securities were introduced after the 2008 global financial crisis to help absorb losses if a bank starts to fail.  

Related Tickers: 

CSGN SW (Credit Suisse Group AG)


--With assistance from Reshmi Basu, Carmen Arroyo and Gowri Gurumurthy.

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