The Wall Street Journal reported the investors include BlackRock Inc., and Allianz SE's Pacific Investment Management Co., among others, and that the settlement involved claims on securities sold between 2005 and 2008 by JPMorgan and investment bank Bear Stears, which JPMorgan purchased at the start of the financial crisis.
The settlement does not include claims on securities sold by Washington Mutual, which JPMorgan also absorbed in 2008. Those claims could add another $1.25 billion to the final settlement, which must be approved in court, the Journal said.
The claims on the securities cuts right to the heart of the financial crisis itself, which involves financial institutions over-selling the value of securities bonds on risky subprime mortgages.
Bank of America settled a similar case with the same group of investors for $8.5 billion, the Journal said. JPMorgan said at the end of the third quarter it had $23 billion set aside to settle claims that the bank calls "legacy related" claims.
In a statement released Friday, the bank said it was "appropriately reserved for this and any remaining residential mortgage-backed securities litigation matters."
That may be debatable. A settlement on similar claims brought by the Justice Department would leave JPMorgan with $11 billion in reserves and up to $16 billion in liabilities related to the financial crisis, industry analyst John McDonald of Sanford C. Bernstein Co. has estimated.
In one remaining claim, Deutsche Bank National Trust Co. is seeking $10 billion on of more than 100 trusts sold by Washington Mutual, the Journal said.
JPMorgan claims that the Federal Deposit Insurance Corporation, which seized Washington Mutual as it collapsed -- and later sold it to JPMorgan -- should be liable for claims related to that bank. The FDIC is arguing that JPMorgan should be held accountable for those deals.