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RBS reaches $500 mln settlement with New York over mortgage securities

(Adds details from settlement, RBS CEO and NY Attorney General comments, U.S. Department of Justice talks, legal reserve, byline)

By Jonathan Stempel

NEW YORK, March 6 (Reuters) - Royal Bank of Scotland Group Plc has reached a $500 million settlement with New York state to resolve charges it misled investors by selling risky mortgage securities that contributed to the 2008 global financial crisis.

The settlement announced on Tuesday by New York Attorney General Eric Schneiderman calls for the British bank to pay $100 million in cash to the state and provide $400 million of relief to homeowners and communities, including funds to build affordable housing.

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RBS (LSE: RBS.L - news) is the sixth bank to settle similar claims by New York, resulting in roughly $3.7 billion of settlements.

JPMorgan Chase & Co (Xetra: 850628 - news) , Bank of America Corp, Citigroup Inc (NYSE: C - news) , Morgan Stanley (Xetra: 885836 - news) and Goldman Sachs (NYSE: GS-PB - news) Group Inc have also settled, with JPMorgan (LSE: JPIU.L - news) 's roughly $1 billion accord in November 2013 the largest, the attorney general's office said.

RBS admitted to having in 2006 and 2007 misled investors into believing the residential mortgage-backed securities it sold were properly underwritten and complied with applicable laws and regulations.

The New York probe had focused on 44 securities offerings worth more than $52 billion, including many that plummeted in value as housing and financial markets fell into distress.

“While the financial crisis may be behind us, New Yorkers are still feeling the effects of the housing crash," Schneiderman said in a statement. "Today's settlement is another important step in our comprehensive effort to help New Yorkers rebuild their lives and communities."

RBS last month said it has set aside 3.2 billion pounds (US$4.4 billion) to cover potential settlements with the U.S. Department of Justice and other regulators over RMBS sales.

"Putting our remaining legacy issues behind us is a key part of our strategy," Chief Executive Ross McEwan said in a statement. "Settling these issues is a stark reminder of the heavy price we continue to pay for the global ambitions pursued by the bank in the run up to the crisis."

The lack of a settlement with the Justice Department has impeded the U.K. government's ability to reduce its recent 71 percent stake in RBS. It had taken a larger stake during the financial crisis, but has sold down part of it. (Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky and Dan Grebler)