Updated from 2:07 p.m. EDT

Financial stocks finished mixed Tuesday, with

Morgan Stanley

(MS) - Get Report

among the handful of losers despite word it would begin the repayment of government bailout funds Wednesday.

CNBC

, citing a person familiar with the situation, reported that Morgan Stanley will start repaying billions of dollars in funds received from the Troubled Asset Relief Program. Morgan Stanley received $10 billion from the Treasury and was told it needed to raise $1.8 billion in capital by the government's stress tests.

However, the firm has raised more than $10 billion through equity, debt and asset sales. After spending most of the session in positive territory, shares shed 1.1% to finish at $28.10.

Morgan Stanley was one of 10 financial firms to receive approval to repay TARP funds this quarter.

Goldman Sachs

(GS) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

American Express

(AXP) - Get Report

,

BB&T

(BBT) - Get Report

and

U.S. Bancorp

(USB) - Get Report

were among the other approved names.

Rochdale Securities analyst Dick Bove said these repayments will be substantial and they will result in a "meaningful, below the line, charge" to the companies involved. Bove provided a methodology for calculating the impacts, finding that the "cost of buying these preferreds back will be quite high."

In a research note, Bove said that once the TARP preferred shares are paid off, banks will still be encumbered by warrants. He argues that it is difficult to fathom how much it will cost the banks to rid themselves of these instruments.

"The warrants are believed to have a 10 year life," Bove wrote. "Therefore, it is incumbent on these companies to redeem the warrants as quickly as they can. The TARP funds provided insurance when it was needed. However, in retrospect this insurance came at a high price."

Among other companies expected to repay TARP funds soon, U.S. Bancorp tacked on 0.2%, and Goldman Sachs was higher by 0.8%Meanwhile, AmEx gave back 2.1%, BB&T slumped 1.6%, and JPMorgan was 1.5% lower.

In other bank news,

Citigroup

(C) - Get Report

CEO

Vikram Pandit told a summit

convened by the Detroit Economic Club Monday that borrowers should accept a new world of tighter, more expensive credit as financial institutions recover from months of bad loans, failed banks and foreclosed homes.

Pandit said he anticipates less credit that is more costly even as financial markets show signs of recovery. He also expects more corporate restructurings across different industries.

Meanwhile,

Nomura Holdings

(NMR) - Get Report

and insurer

T&D Holdings

are among the firms in the second round of bidding for

Citigroup's Japanese asset management arm

in a deal likely to exceed $1 billion,

Reuters

reports, citing sources. Citigroup shares gave back 3.6% to $3.25.

Among analyst moves, Sterne Agee initiated coverage of

F.N.B. Corp.

(FNB) - Get Report

and

Pinnacle Financial

(PNFP) - Get Report

with buy ratings and stock price targets of $8 and $18, respectively. F.N.B. shares rose 1.8% to $6.23, and Pinnacle gained 0.4% to $14.19.

FBR Capital Markets lowered its stock price target for

Capital One Financial

(COF) - Get Report

to $24 from $28 following the release of its May managed and trust credit metrics. On Monday,

Capital One said its annualized net charge-off rate

for domestic cards last month was 9.41% on a $65 billion portfolio, up 85 basis points from April. Shares were down 1.1% to $23.15.

Meanwhile, Rochdale Securities' Bove wrote in a research note that it is possible that

PNC Financial Services

(PNC) - Get Report

may be able to mark up the value of its holdings by as much as $2 billion in the near future as

BlackRock

(BLK) - Get Report

issues shares to buy the money management arm of

Barclays

(BCS) - Get Report

.

PNC shares lost 2.9% to $39.39.

RBC Capital Markets released a research note saying the firm was still concerned that credit issues and the potential for future capital raises are not fully priced-in to the shares for most of our western banks.

Based on recent credit trends, RBC said it was most cautious about

Cascade Bancorp

(CACB)

,

West Coast Bancorp

( WCBO),

Preferred Bank

(PFBC) - Get Report

, and

UCBH Holdings

( UCBH).

Also, despite their attractive franchises, RBC remains concerned that the valuations of

City National

(CYN)

and

Umpqua Holdings

(UMPQ) - Get Report

may not fully reflect the risk inherent intheir loan and geographic exposures.

On the other hand, RBC calls

WestAmerica Bancorp

(WABC) - Get Report

"well-positioned" and should have other opportunities to buy troubled banks in its market. The firm also said

Wells Fargo

(WFC) - Get Report

,

Bank of America

(BAC) - Get Report

and

SVB Financial

(SIVB) - Get Report

"offer attractive upside."