ROYAL Bank of Scotland, Deutsche Bank and Wells Fargo & Co have agreed a $165 million (£135m) class-action settlement in the US over under-writing for NovaStar Mortgage Inc, the now bankrupt subprime lender.

The case centred on claims offering materials prepared by the banks misled investors into believing that around $7.55 billion of NovaStar loans were safe and properly underwritten, Reuters reported. The agreement was made public in New York yesterday morning but has still to be approved by the US courts. A spokeswoman for Royal Bank confirmed the $165m settlement figure but said there was no break down on the amount to be paid by each bank.

Separately, the Edinburgh-based lender is expected to reach a settlement with the US Department of Justice over mis-selling residential mortgage backed securities this year.

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