LONDON/SAO PAULO (Reuters) - Credit Suisse (>> Credit Suisse Group AG) and Julius Baer (>> Julius Baer Gruppe AG) are among a handful of banks vying to buy the Swiss private-banking arm of embattled Brazilian investment bank Grupo BTG Pactual SA (>> Grupo BTG Pactual) in a cut-price deal, sources with direct knowledge of the talks told Reuters on Wednesday. Zurich-based Credit Suisse is exploring an offer that would value BSI at less than 1 billion Swiss francs ($1.01 billion), one of the sources said, speaking on condition of anonymity.

This would be a 20 percent plus discount from what BTG paid for Lugano-based BSI in a deal completed in September.

BSI has been put on the block after its billionaire founder André Esteves was arrested in connection with a corruption probe in Brazil. BTG Pactual is selling assets as fast as it can and has tapped funding from a credit guarantee fund as investors, fearful it will be dragged further into the scandal, run scared.

BTG, Credit Suisse, Julius Baer and BSI declined to comment.

Two sources said Italy's Intesa Sanpaolo (>> Intesa Sanpaolo SpA) as well as two unidentified Chinese organizations were also interested in BSI. Switzerland's J. Safra Sarasin could be another interested buyer, they said.

A spokesman at Intesa said the Italian bank was not conducting due diligence on BSI. Sarasin did not immediately respond to a request for comment.

China's Fosun International is keen to invest in European private banking businesses, a source close to the Chinese investment firm said, while declining to comment on BSI.

Industry bankers said Fosun is monitoring the sale of BSI but it remains unclear whether the Chinese investment firm, which owns Portugal's largest insurance company, Fidelidade, and has vied for Portuguese bank Novo Banco, is looking to place an offer.

No one at Fosun was immediately available to comment.

BTG Pactual was looking to seal a deal soon and would like to start bilateral talks with one of the bidders in the coming weeks, sources said. Tidjane Thiam, the chief executive of Credit Suisse, said in October he wanted Switzerland's second-biggest bank to act as a consolidator to smaller Swiss banks struggling under the increased cost of regulation.

Julius Baer's chief executive played down the bank's chances of bidding for BSI in an interview published on Monday, but a second source familiar with the matter said Julius Baer and Credit Suisse were among the banks to show interest in BSI.

Regulatory approval could be a stumbling block for some of the potential buyers with one source saying Swiss financial industry watchdog FINMA needs to approve any deal, but doesn't feel comfortable with either of the two Chinese organizations buying BSI. FINMA declined to comment. Sources estimated the size of a potential transaction at between 800 million and 1 billion Swiss francs, though BTG Pactual may hold out for a higher amount.

BTG Pactual bought BSI from Italy's Assicurazioni Generali SpA (>> Assicurazioni Generali SpA) in order to access a stable stream of fee-based revenues outside of its home turf Brazil, which is struggling with its deepest recession in a quarter century.

BSI's assets under management at the end of June totaled $87.6 billion.

(Additional reporting by Steve Slater in London, Tatiana Bautzer in São Paulo, Jesus Aguado in Madrid and Joshua Franklin in Zurich; Editing by Carmel Crimmins and James Dalgleish)

By Pamela Barbaglia and Guillermo Parra-Bernal