The Portuguese government and JP Morgan Chase & Co are attempting to resolve a tussle over potentially costly derivative contracts sold by the U.S. investment bank to state-owned companies.
One source familiar with the situation, who spoke on condition of anonymity, said talks had begun after both sides threatened legal action over a series of complex hedging products described as "toxic" by Lisbon.
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No further information was immediately available.
The row between JP Morgan and Lisbon, which is trying to stem potential losses of up to 3.0 billion euros ($4.0 billion)from complex hedging products sold to companies such as the Lisbon and Porto Metro, echoes similar battles in countries such as Italy as bank clients say they were missold products.
JPMorgan launched a London lawsuit as a "protective measure" after Portugal's cash-strapped government vowed on April 26 to challenge in court swap contracts with JP Morgan and the local unit of Spain's Santander .
Metro firms, alongside other publicly-owned entities, signed derivative contracts between 2003 and 2010 with banks such as Credit Suisse , Deutsche Bank , BBVA and Merrill Lynch to protect against any rise in Euribor-based interest rates.
But rates slumped in the past few years, leaving those companies on the wrong side of the bet.
Treasury Secretary Maria Luiz Albuquerque said last month the government had managed to renegotiate swap contracts containing "highly speculative elements" with some banks, cutting by 20 percent potential liabilities from swaps that could total 3 billion euros.
Officials at Santander did not respond to phone messages or email.
($1 = 0.7705 euros)
(Reporting by Kirstin Ridley; editing by Keiron Henderson)