AIG to keep core insurance, sell assets to pay U.S. loan

By Juan Lagorio and Lilla Zuill

NEW YORK (Reuters) - American International Group Inc (AIG.N), crippled by losses on bad mortgage bets, said on Friday it will focus on its main insurance operations and put the rest of its businesses up for sale to repay up to $85 billion borrowed from the U.S. government.

The company, whose shares soared by as much as 24 percent before sliding into negative territory in late trading, said it would keep its U.S. property and casualty, and foreign general insurance businesses, and an ownership interest in its foreign life operations, which generated nearly $40 billion in revenues in 2007.

"Literally, everything else that doesn't fit under that definition we are considering for sale," said AIG Chief Executive Edward Liddy on a conference call with analysts.

Liddy said he didn't expect a fire sale, adding that buyers would have to assume the debt of the businesses they acquire.

"I want to balance speed with value. ... We have a number of buyers interested," Liddy said in an interview with Reuters.

Among the assets AIG may sell are aircraft leasing unit International Lease Finance Corp (ILFC) and its stake in reinsurer Transatlantic Holdings Inc (TRH.N).

It could also sell parts of American Life Insurance Co (ALICO), which operates as a life insurer in more than 55 nations and regions, and a minority stake in American International Assurance Company Ltd.

AIG, which had 116,000 employees in 130 countries at the end of last year, also said it was working on alternatives for its financial products business and securities lending program.

"Aside from the derivative mess ... there seems to be a significant amount of value still in AIG despite what happened," said Michael Sheldon, chief market strategist of RDM Financial Group.

FED'S MONEY

The company, once the world's largest insurer, received a federal bailout on September 16 after losses in its financial products unit drove it to the brink of collapse. The bailout -- in the form of a loan in exchange for warrants -- would give the U.S. government 80 percent ownership.

The loan -- which provides liquidity to meet short-term financing needs while AIG prepares the assets sale -- carries a high interest rate and fees, and must be repaid within two years. AIG also suspended dividends on its common stock.

The insurer's troubles, similar to those of Wall Street firms, stem from guarantees it wrote on mortgage-linked derivatives that have resulted in $18 billion in losses over the past three quarters. AIG's revenue fell 3 percent to $110 billion last year.

It said it had drawn $61 billion on the Federal Reserve facility as of September 30 and used the proceeds to cover securities lending and ensure liquidity.

"I am not a big fan of the word 'never,'" Liddy told analysts when asked whether AIG would go back to the Fed for more help.