Morgan Stanley seen among first to exit TARP

Morgan Stanley is likely to be part of the first wave of major banks to exit the U.S. government's bank bailout program after recently selling more than $2 billion of shares, research analysts said on Wednesday.

Analysts at Goldman Sachs Group Inc and Bank of America Corp wrote that Morgan Stanley has raised more equity than it needed to pass the government's capital tests last month, and now has capital levels similar to JPMorgan Chase & Co , which also sold shares this week.

JPMorgan Chief Financial Officer Michael Cavanagh said earlier this week that the bank was told to raise $5 billion if it wanted to exit the government's Troubled Asset Relief Program.

Clearly the government is demanding considerably more stringent requirements... to allow banks to exit TARP immediately, wrote Bank of America's Guy Moszkowski in a report on Wednesday, adding that Morgan Stanley appears to have raised enough capital to be in the first wave. Moszkowski rates Morgan Stanley a buy.

Goldman Sachs analysts led by Richard Ramsden said in a research note that Morgan Stanley expects to repay the $10 billion it borrowed under TARP by the end of June, similar to JPMorgan. In addition to its equity sales, the bank has sold $4 billion in non-government guaranteed debt, and sold a $596 million stake in MSCI Inc , an investment analysis and index company.

The Federal Reserve said earlier this week that selling non-government guaranteed debt and common equity are necessary conditions for exiting TARP.

Bank of America's Moszkowski said the Fed is evidently being tough for three reasons: to make sure banks do not come back to TARP for more capital, to ensure these companies have enough capital to lend and trade, and to be seen as tough in general.

In any event, banks seem willing to pay the price to move on, Moszkowski wrote.

(Reporting by Steve Eder; Editing by Tim Dobbyn)