Representatives of JP Morgan and the investors met on Friday to discuss the settlement, though the two sides have not yet agreed to formal terms, the source said.

The potential deal is separate from the preliminary USD 13 billion settlement JP Morgan has reached with US government that would resolve a raft of civil actions brought by several enforcement agencies.

The group of more than a dozen bondholders includes BlackRock Inc, Allianz SE's Pacific Investment Management Co and Neuberger Berman Inc, the source said.

Kathy Patrick, a lawyer for the investors group, did not immediately respond to requests for comment. JP Morgan also was not immediately available outside regular US business hours.

Patrick and her Houston-based firm, Gibbs & Bruns, also represent a group of investors that struck an USD 8.5 billion settlement with Bank of America Corp in 2011 over similar allegations stemming from the bank's Countrywide unit. A New York state judge is weighing whether to approve that deal after American International Group Inc and others objected, arguing that it was too small.

In 2011, the law firm said its investor clients had instructed trustees overseeing USD 95 billion of securities issued by JP Morgan's affiliates during the housing boom to investigate whether the bonds were backed by ineligible mortgages.

The firm said its clients represented holders of more than 25 percent of the voting rights in the securities, which included bonds from Bear Stearns and Washington Mutual, two firms that JP Morgan took over during the financial crisis.

JP Morgan reported a third-quarter loss earlier in October 2013, the first under CEO Jamie Dimon, after recording a USD 7.2 billion after-tax expense to add money to its legal reserves in anticipation of settling US government's mortgage claims.

The company had USD 23 billion in its legal reserves as of the end of the quarter.

Two sources familiar with the matter said that JPMorgan's tentative USD 13 billion settlement with US government could end up costing the bank closer to USD 9 billion after taxes, because the majority of the deal was expected to be tax deductible.

(Agencies)

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