Morgan Stanley buys back TARP warrants for $950 million

Morgan Stanley, the sixth-biggest US bank by assets, said it is repurchasing the warrants it had issued to the US Treasury in October for $950 million. Morgan Stanley has paid the government a total of $1.27 billion in dividends and to redeem the warrants.

''Morgan Stanley is pleased to be repurchasing this warrant and providing US taxpayers a 20 per cent annualised return on their investment in our company,'' Morgan Stanley chief executive officer John Mack said in a statement yesterday.

''We appreciate the critical role that the US government played last fall in helping stabilise the banking industry and financial markets at a moment of unprecedented crisis,'' he added.

The warrants, which could have been converted to common shares, were issued to the Treasury as part of the loan package it received under the Troubled Asset Relief Programme (TARP).

As part of the programme, Morgan Stanley received $10 billion in funding from the government. In exchange, the government received preferred shares in Morgan Stanley and the warrants to purchase common shares.

In the October 28 agreement, the Treasury gained a 10-year warrant containing the right, but not the obligation, to buy as many as 65.25 million shares of Morgan Stanley at an exercise price of $22.99 per share, according to a regulatory filing last year.
 
Morgan Stanley repaid $10 billion plus dividends to the US Treasury in June, freeing them of restrictions on paying year-end bonuses to employees.