Will AIG Get to Bend the Rules for Buyers?

News that American International Group may report up to a $60 billion loss in the fourth quarter — and is seeking still more government bailout money – could be the tipping point in getting its assets sold.

AIG is holding the biggest yard sale in history. It had $1 trillion in assets pre-recession, and nearly everything is for sale except its property insurance company, according to CEO Edward Liddy.

Items on the counter include crown jewels like an aircraft leasing unit that has apparently attracted interest from China. To facilitate the sale AIG has hired top sales people around the world: Merrill Lynch, Citigroup, Goldman Sachs, UBS and JPMorgan are all its investment bankers, while private equity firm Blackstone Group is its global advisor.

But since its divestiture announcement last year, it’s only closed five or six deals totaling about $2 billion. “It’s not for lack of market interest,” said David Monfried, the AIG spokesman for these deals, told me in an interview. “But potential buyers are as affected by the recession as we are, and in some cases, more so. We’re all at a nadir.”

The terms AIG accepted to get the $150 billion federal bailout last year included limitations on how buyers can pay for AIG’s assets: 90 percent cash is required. That puts a crimp in prospective deals. “We are talking to one large insurer about buying one of our properties for $2 billion to $3 billion,” said Monfried. “They want to purchase it — but with their stock as well as their cash.”

Will the Federal Reserve and Treasury Department approve a change in the way AIG is allowed to sell its assets? It’s a tough choice.

If they do, then the acquiring company’s stock would become part of AIG, which is now 80 percent owned by the government. So U.S. taxpayers would then have an additional investment in a second, third or even fourth company, depending on how many deals get done.

But doing nothing could saddle the country with an even larger bill for bailing out the troubled company - or push AIG, one of America’s largest financial corporations, into bankruptcy. And no one wants another Lehman Brothers.

“We talk to the Feds every day, and they are well aware of our circumstances,” Monfried said. “It’s not inconceivable that at some point our agreement with the U.S. government will be modified to reflect today’s reality.

That reality worsens every day. “They would love to sell, but the markets have run against Ed Liddy every day since the divestiture was announced last year,” New York State Insurance Commissioner Eric Dinallo told BNET Finance. The New York Department of Insurance heads the oversight committee for these sales, and Dinallo may prove to be an ally in changing these terms.