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American International Group Inc. may not sell assets for as much as it would like, as it scrambles to meet terms of its U.S. government bailout.

The giant insurer narrowly avoided bankruptcy late Tuesday after the U.S. Federal Reserve agreed to lend up to $85 billion over two years — giving the new chief executive, Edward Liddy, time to sell some ÌìÃÀÍøÕ¾´«Ã½´«Ã½ businesses.

ÌìÃÀÍøÕ¾´«Ã½´«Ã½ employs some 116,000 people in more than 130 countries, and analysts said it has many strong businesses.

But they said tight capital markets, falling valuations, and the Fed directive for ÌìÃÀÍøÕ¾´«Ã½´«Ã½ to sell assets will make it harder to fetch good prices — be it from rival insurers, other financial services companies, private equity investors and even Warren Buffett’s Berkshire Hathaway Inc.

“This is hardly an ideal way or moment to sell assets,” said Marshall Sonenshine, chairman of New York investment bank Sonenshine Partners LLC. “That said, there are a lot of good businesses inside ÌìÃÀÍøÕ¾´«Ã½´«Ã½, and there is going to be competition. The government is not going to be a stupid seller.”

Liddy, a former CEO of Allstate Corp , will replace Robert Willumstad at the helm of ÌìÃÀÍøÕ¾´«Ã½´«Ã½, according to a person briefed on the matter.

He would take over an insurer that suffered $18 billion in losses over three quarters. Problems tied largely to complex mortgage-related securities erased most of ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s market value and caused a liquidity crisis that led to the bailout.

Liddy, currently a member of the board of Goldman Sachs Group Inc., has a front row seat to the credit crisis. It may also have raised his profile with U.S. Treasury Secretary Henry Paulson, a former Goldman CEO.

MANY UNITS, MANY OPTIONS

ÌìÃÀÍøÕ¾´«Ã½´«Ã½ had about 240 units at the end of 2007, divided among four divisions: general insurance, life insurance and retirement services, financial services and asset management.

ÌìÃÀÍøÕ¾´«Ã½´«Ã½ could sell assets worth $30 billion, according to an estimate by John Hall, an analyst at Wachovia Capital Markets LLC. Joshua Shanker, an analyst at Citigroup Global Markets, calculated $35 billion in a report on Monday.

Shanker said ÌìÃÀÍøÕ¾´«Ã½´«Ã½ could get $7 billion to $10 billion for its International Lease Finance Corp aircraft leasing business — the world’s second largest — and $5 billion to $7 billion for its personal lines business.

ÌìÃÀÍøÕ¾´«Ã½´«Ã½ might also fetch less than $2 billion each for its Transatlantic Holdings Inc. reinsurance business, and $5 billion to $15 billion for asset management, according to Shanker.

Analysts said well-capitalized Japanese insurers, Australia’s QBE Insurance Group Ltd, Canada’s Manulife Financial Corp. and perhaps Europe’s Swiss Re Co. Ltd and Munich Re AG might eye ÌìÃÀÍøÕ¾´«Ã½´«Ã½ businesses.

“Anything they can offload quickly has to be considered carefully, including core businesses,” said Sean Egan, managing director of Egan-Jones Ratings Co.

Yet Michael Nix, a portfolio manager at Greenwood Capital Associates LLC in Greenwood, South Carolina, noted that valuations for many insurers are well off their 52-week highs, including large insurers such as Hartford Financial Services Group Inc and Prudential Financial Inc.

“ÌìÃÀÍøÕ¾´«Ã½´«Ã½ might not get the prices that natural buyers might think they’re worth,” he said. “ÌìÃÀÍøÕ¾´«Ã½´«Ã½ has had expressed interest in most of its units already. But there remain a lot of capital constraints in the market.”

BRINGING ORDER TO DISORDER

In a statement, the Fed said it stepped in to avoid a possible destabilization of already-fragile financial markets, and a depression in an already-weak economy, that could have resulted from a “disorderly failure” of ÌìÃÀÍøÕ¾´«Ã½´«Ã½.

“The size of the loan was designed to leave little doubt that ÌìÃÀÍøÕ¾´«Ã½´«Ã½ would be able to survive the current market turmoil regardless of what the next several quarters hold in store,” Friedman, Billings, Ramsey & Co analyst Bijan Moazami wrote.

Several analysts said ÌìÃÀÍøÕ¾´«Ã½´«Ã½ likely won’t need to sell assets at fire-sale prices. “There will be bidders for all of their units, outside of the ones that have caused the problems,” said Donald Light, an analyst at Celent LLC in San Francisco.

Berkshire, a holding company that generates about one-half of its business from insurance, ended June with $31.16 billion in cash, giving it ample funds for the big acquisitions that the 78-year-old Buffett has long said he wanted.

Buffett was reportedly approached in the last few days to help out in a possible bailout of ÌìÃÀÍøÕ¾´«Ã½´«Ã½, but did not do so. A big reason ÌìÃÀÍøÕ¾´«Ã½´«Ã½ needed help was exposure to derivatives, which Buffett called “financial weapons of mass destruction” in his 2003 letter to Berkshire shareholders.

The billionaire investor did not immediately return a request for comment. But Greenwood’s Nix said: “It wouldn’t surprise me to see him in the fray.”

(Additional reporting by Bill Rigby, Dan Wilchins and Lilla Zuill in New York, and Tony Munroe in Hong Kong; editing by Jeffrey Benkoe)

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