June 9 (Bloomberg) -- JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley were among 10 banks that won U.S. Treasury approval to buy back $68 billion of government shares, freeing them from added oversight that curbed lending practices, hiring and pay.

“These repayments are an encouraging sign of financial repair,” Treasury Secretary Timothy Geithner said in a statement today. “But we still have work to do.”

The government’s decision to allow the biggest repayments to the Troubled Asset Relief Program reflects surging financial stocks and rising pressure from banks to free themselves of political interference. U.S. firms unveiled plans to raise more than $100 billion since government stress tests of the 19 largest banks found that 10 needed $74.6 billion of additional capital to weather a more severe recession.

The government didn’t name the banks. In addition to JPMorgan, Goldman Sachs and Morgan Stanley, American Express Co., Bank of New York Mellon Corp., BB&T Corp., Capital One Financial Corp., Northern Trust Corp., State Street Corp. and U.S. Bancorp all said today they are repaying the funds.

“They’re in some ways picking winners and losers,” said Jennifer Thompson, an analyst at Portales Partners LLC in New York. “There might initially be somewhat of a cloud lifted off the banks that are able to repay TARP.”

Dividend Payments

The approved firms didn’t include Bank of America Corp., the biggest U.S. bank by assets, and Citigroup Inc., each of which have accepted $45 billion from the government. Wells Fargo & Co., the nation’s largest mortgage lender and the recipient of $25 billion in government aid, also wasn’t on the list. Treasury didn’t say whether it rejected any applications.

“There will be a question that potentially overhangs some of those names that haven’t returned TARP,” said Scott Siefers, an analyst at Sandler O’Neill & Partners LP in New York. “How are you going to get out from under it and what will it mean for me? Are you going to issue more shares somewhere down the road?”

Combined with repayments already received from about 22 other firms, the government will have gotten about $70 billion, the Treasury said today. Dividend payments on the shares issued to the government under the Capital Purchase Program total about $4.5 billion to date, including $1.8 billion from the 10 banks, the department said.

Warrants

Firms buying back the government’s preferred shares also have the right to repurchase warrants the Treasury holds “at fair market value,” today’s statement said. The Treasury, which has been criticized in Congress for previously letting banks buy back government stakes at discount prices, didn’t elaborate today on how it plans to value the warrants.

The government previously sold warrants back to New Jersey’s Sun Bancorp for 32 cents on the dollar, and to Louisiana’s IberiaBank for 46 cents, according to Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.

Herb Allison, the Obama administration’s nominee to run TARP, told lawmakers last week that the Treasury would soon announce details of its policy handling the warrants. The total value of the warrants is about $5 billion, according to Treasury calculations made last month. Wilson said his own analysis shows the value of all of the government warrants in the banks is closer to $12 billion.

Paulson Applauds

The repayments come almost eight months after then-Treasury Secretary Henry Paulson, seeking to quell market panic that followed the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc., provided nine banks with the first $125 billion from the $700 billion TARP fund.

Paulson said today’s repayment announcement is the first example of the measures necessary to unwind government programs put in place over the past year to help the financial system.

“The recovery of our capital markets must remain a top priority,” Paulson said in a statement today. “Some sectors are still not performing as normal.”

Executives at the banks that were cleared to repay their money welcomed the move in memos to employees obtained by Bloomberg News.

Mack, Dimon, Blankfein

Morgan Stanley Chief Executive Officer John Mack called his bank’s selection “a reflection of our strong capital position, our powerful global franchise as well as our positive momentum in recent months.” JPMorgan’s inclusion allows the U.S. government “to use this important capital for other critical purposes,” the bank’s CEO, Jamie Dimon, wrote in his memo.

“Goldman Sachs is grateful for the government’s extraordinary efforts and the taxpayers’ patience,” wrote the bank’s CEO, Lloyd Blankfein, and president, Gary Cohn. “Our return of the government’s investment does not, in any way, end our obligations to the public interest.”

Even after repaying the government, the banks continue to benefit from measures put in place last year to support the financial system. Among them is the Temporary Liquidity Guarantee Program, under which the Federal Deposit Insurance Corp. guarantees debt issues from the companies for up to three years, allowing them to cut their borrowing costs.

Michael Cavanagh, JPMorgan’s chief financial officer, said in an interview on CNBC today that JPMorgan intends to stop issuing FDIC-guaranteed debt. JPMorgan has issued more than $35 billon of government-backed debt since the program started in October, according to data compiled by Bloomberg.

Financial shares have surged on rising confidence that the economic crisis is past its worst and that banks are viable enough to survive the deepest recession in half a century. The Standard & Poor’s 500 Financials Index has gained 49 percent in the past three months.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net; Robert Schmidt in Washington at rschmidt5@bloomberg.net

Last Updated: June 9, 2009 14:53 EDT