Golman Sachs and JP Morgan Chase are understood to be putting together a $75 billion emergency funding package for AIG to keep the embattled American insurance giant afloat, after the US government asked them to lead a rescue of the group.

The government’s request for the emergency credit line came as local and federal officials scrambled to help AIG to raise about $40 billion as soon as possible to head off the imminent threat of a downgrade of its credit rating, that could ultimately lead to its demise. Goldman and JP Morgan declined to comment, while an AIG spokesman confirmed only that the group was “working on a number of alternatives”.

It is understood that Goldman and JP Morgan are working with AIG to determine how much money it needs and talking to other banks about the possibility of syndicating most of the bridge loan.

The government’s dramatic intervention came this afternoon after AIG had earlier secured approval from New York state authorities to liberate $20 billion (£11.2 billion) from its own balance sheet.

The agreement, signed off by David Paterson, the New York governor, formed part of a wider financial rescue.

Eric Dinallo, the state insurance commissioner, is holding talks with the Fed tonight over the terms of a possible loan. Also present were representatives of the Treasury department, financial services groups and state officials. The Fed said that the meeting had been requested by AIG.

It was reported that the Fed had hired Morgan Stanley, the Wall Street securities firm, to negotiate the terms of a loan agreement for AIG. The Fed declined to confirm the appointment.

However, if the Fed presses ahead with a loan, it would mean that the loss-making insurance group would have secured up to $60 billion to shore up its tattered balance sheet.

Shares in AIG, once the world’s largest insurer, more than halved when trading opened in New York yesterday and ended the day down 61 per cent at $4.76. (settled 45 per cent lower amid anticipation that it was preparing to update the market about its financial health.)

The firm, which has generated $18.5 billion of losses during the past nine months, is considering selling off its consumer finance group, parts of its reinsurance business and its financial products unit in a battle to raise cash.

It is understood that Kohlberg Kravis Roberts, TPG and JC Flowers, the buyout investors, held talks with AIG over possible asset sales, but no agreements had yet been reached.

Speculation was mounting that AIG might also sell off its aircraft-leasing division, the second-largest of its kind worldwide behind the Commercial Aviation Services.

There were also reports that AIG had been holding talks with Warren Buffet, the billionaire investor who runs Berkshire Hathaway, but that discussions had now ended.

A spokesman for AIG did not return calls seeking comment.

Mr Paterson said that the state of New York had effectively enabled AIG to extend a $20 billion bridging loan to itself. He said that no us taxpayer dollars were involved and emphasised that this was not a government bailout.

He also urged the Fed to do what was necessary to ensure the survival of AIG, which has come under threat of a ratings agency downgrade because of its hefty exposure to the commercial property and structured finance markets.

“I have directed our superintendent of insurance to provide authorisation such that AIG can access $20 billion of its assets through its subsidiaries . . . To provide liquid cash in order to run the day-to-day operations of the parent company,” Mr Paterson said.

“What we have been trying to underscore for months is that the world as we have known it in finance is changing, and this may still be a prelude to other problems. We have seen some of the companies that serve as bedrocks of our economic system unraveling right before our eyes. One of those companies is AIG.”

AIG employs 8,500 staff in New York, about 6,000 of those in Manhattan. “New York would like to maintain if we can as they are critically important to us,” Mr Paterson said.

The company is also a substantial owner of state municipal bonds. A downgrade of its credit rating could have a big economic impact on the state and the wider us economy. The group employs about 3,000 people in the UK and 116,000 worldwide.

Tony Plath, Associate Professor of Finance at the University of North Carolina, said that AIG’s woes had not been caused by excessive claims. “What’s going on is the same thing that’s going on in the banking industry,” he said. “They are writing down their assets because they’ve got assets that are not worth what their balance sheet says they’re worth.”

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