Morgan Stanley to pay $950 million for TARP warrants

NEW YORK (Reuters) - Morgan Stanley (MS.N) has agreed to pay the U.S. Treasury $950 million to redeem warrants to buy its stock, becoming the latest big bank to free itself from the government bailout program.

Morgan Stanley in June paid back $10 billion received under the U.S. Treasury's Troubled Asset Relief Program. Companies were eager to leave the program to escape potential rules restricting executive pay.

Morgan Stanley CEO John Mack said in a statement that his company appreciated the "critical role" the government played in stabilizing the banking industry and financial markets "at a moment of unprecedented crisis."

Morgan Stanley said that including dividends, its payments to the government will total $1.26 billion, a 20 percent annualized return on its investment last fall.

On Wednesday, Bank of New York Mellon Corp (BK.N) said it paid the Treasury $136 million to redeem its warrants, joining Goldman Sachs Group Inc (GS.N), U.S. Bancorp (USB.N), American Express Co (AXP.N), BB&T Corp (BBT.N) and State Street Corp (STT.N) on the list of large financial institutions that have redeemed warrants issued under TARP.

JPMorgan Chase & Co (JPM.N) has said it will let Treasury auction its warrants rather than pay an inflated price to buy them back.

Last month, a congressional oversight panel cautioned the government against letting companies buy back warrants too cheaply.

Linus Wilson, a finance professor at the University of Louisiana at Lafayette who has studied TARP warrants, estimated that as of Wednesday the Morgan Stanley warrants were worth between $1.18 billion and $1.67 billion, with a best estimate of $1.39 billion.

Still, he said the government probably got a fair deal on the warrants because Morgan Stanley could have taken steps that would have reduced the price.

"All in all, they probably got more than they could have expected had it gone to auction," Wilson said.

Goldman Sachs, which also received a $10 billion bailout from the Treasury, paid $1.1 billion in July to redeem its warrants.

Hundreds of companies are still holding TARP funds. Many initially welcomed the money but later viewed it as a stigma.

(Reporting by Steve Eder, editing by Gerald E. McCormick and John Wallace)