July 10 (Bloomberg) -- State Street Corp. paid $60 million to repurchase warrants held by the U.S. Treasury, becoming the first major financial firm to exit the government’s $700 billion rescue program.

State Street, the world’s largest money manager for institutions, previously bought back $2 billion in preferred shares it received in October under the Troubled Asset Relief Program. The Treasury released details today about the warrant sale to the Boston-based lender.

Nine other large banks, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., joined State Street last month in repaying a collective $68 billion in rescue funds. The others have yet to negotiate deals with the Treasury for buying back warrants, securities obtained as part of the bailout that give the government the right to buy common equity at a set price.

The warrant sales are politically sensitive for the Treasury, which has been under pressure by lawmakers to drive a hard bargain on behalf of taxpayers. Banks, in turn, have complained that valuing the securities too highly could impede the administration’s goal of restoring stability to the financial system.

State Street spokeswoman Carolyn Cichon confirmed the repurchase while declining further comment.

Earlier today, a watchdog group issued a report asserting that the Treasury has sold warrants it obtained from rescued banks for about two-thirds of what they are worth.

Price Too Low

The Congressional Oversight Panel said taxpayers should have recovered $10 million more from warrant sales with 11 small banks. A Treasury official disputed the conclusion, saying the government has rejected as too low most proposals from the largest banks seeking to retire the warrants.

Under a policy released by the Treasury last month, banks have 15 days after retiring the government shares to propose a “fair market value” for the warrants. Should officials object to the estimate, up to three “independent appraisers” will help set a price. For lenders that don’t want to make an offer, the Treasury will sell the securities at auction.

JPMorgan said yesterday it will allow the government to auction the warrants it holds in the bank after the Treasury rejected an appraisal as too low.

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.

Last Updated: July 10, 2009 18:39 EDT