Morgan Stanley leaves smaller TARP tip

(breakingviews.com) -- Morgan Stanley has left less on the table for Tim Geithner than Goldman Sachs did. The former has bought back its Troubled Asset Relief Program warrants for $950 million, against Goldman's $1.1 billion.

That makes sense. John Mack's firm could afford to negotiate a bit harder with the U.S. Treasury -- after all, it hasn't made quite so much money out of the crisis.

Each firm originally gave the Treasury warrants over $1.5 billion worth of shares when the U.S. government invested $10 billion under TARP. The ingredients of warrant valuation are complex, and Morgan Stanley's may have been worth a bit less than Goldman's because of differences in share price moves since they were issued or other factors.

But Morgan Stanley (MS, Fortune 500) also negotiated a bit with Treasury, while Goldman (GS, Fortune 500) -- under public scrutiny for its profits and accrued pay -- took the Treasury's opening offer, even though it was far higher than the firm had proposed paying.

It's faint praise to suggest that Morgan Stanley could afford to drive a slightly harder bargain because it hasn't done so well out of the crisis. But Goldman may well have felt that pushing for an even slightly lower price would worsen its PR problems.

Morgan Stanley says that after interest on the now repaid TARP investment is added to the warrant payment, U.S. taxpayers made a 20% annualized return on its investment. Coincidentally or not, that just crosses the level needed to put it in the same psychological box as the 23% Goldman says it delivered.

In a way that's the wrong way round. Both firms were briefly in serious danger, but Morgan Stanley was first in line and therefore arguably the riskier investment for the government. But for now the firm isn't looking in quite such rude health as Goldman. Perhaps that entitles it to deliver a slightly less profuse message of thanks.