Goldman Sachs and JPMorgan 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 quickly about $40 billion to head off the imminent threat of a downgrade of its credit rating, that could lead to its demise. Goldman and JPMorgan 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 JPMorgan are working with AIG to determine how much money it needs and talking to other banks about the possibility of syndicating the loan.

The Government’s dramatic intervention came yesterday afternoon after AIG had earlier secured approval from New York State authorities to liberate $20 billion from its own balance sheet. The agreement, signed by David Paterson, the New York Governor, formed part of a wider financial rescue.

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

The Fed has hired Morgan Stanley, the Wall Street securities firm, to examine the systemic risks posed by AIG and to advise on funding options.

Shares in AIG, once the world’s largest insurer, ended the day down 61 per cent at $4.76. The firm, which has generated $18.5 billion of losses during the past nine months, is considering selling its consumer finance group, parts of its reinsurance business and its financial products unit 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 last night that AIG might also sell its aircraft-leasing division, the world’s second largest. There were also reports that AIG had been holding talks with Warren Buffet, the billionaire investor who runs Berkshire Hathaway, but that they had ended. AIG did not return calls for its 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 it was not a government bailout. He also urged the Fed to do what was necessary to ensure AIG’s survival, which has come under threat of a ratings agency downgrade because of its big exposure to the commercial property and structured finance markets.

Mr Paterson said: “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.

“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 unravelling right before our eyes. One of those companies is AIG. New York would like to maintain [AIG] if we can as they are critically important to us.”

AIG employs 8,500 staff in New York, about 6,000 of them in Manhattan. 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 at Charlotte, said that AIG’s woes had not been caused by claims: “They are writing down their assets because they are not worth what their balance sheet says they are worth.”

Journey to crisis point

August 2007 AIG says that its exposure to the sub-prime crisis is “minimal”

November AIG says that its exposure to the debt remains high-quality, with “substantial protection”

February 11, 2008 AIG says that it must write down the value of investments in sub-prime mortgages by about $4.88 billion for October and November

February 25 Five former insurance executives whose conduct led to the resignation of Henry “Hank” Greenberg, the former head of AIG, are convicted of fraud and conspiracy to defraud. They are accused of conspiring to create a reinsurance deal between the two companies that allowed AIG to artificially boost the group's reserves by $500 million in 2000 and 2001

February 28 The retirement of Joe Cassano, the head of its financial products division, is announced after the biggest loss in AIG's 89 years. Losses reach $5.29 billion in fourth quarter and for the full year profits fall from $14 billion to $6.2 billion

March 28 AIG sues Mr Greenberg and six other former employees, alleging they “misappropriated” $20billion of its shares

June 16 Martin Sullivan is ousted as chief executive and succeeded by Bob Willumstad, the chairman

August 7 Shares fall by 18.25 per cent. AIG announces that it took $11.7billion of writedowns that pushed the group to a $5.4 billion loss for the period

September 12 Appoints JPMorgan for rescue plan after its shares fall a record 31 per cent in a day

September 12 Mr Greenberg and three other former executives agree to pay $115 million to settle a lawsuit over accusations that he has failed in his fiduciary duty as former chief executive of AIG

September 15 AIG receives New York State approval to tap $20 billion of its own capital. The company has been in rescue talks with Berkshire Hathaway, but those talks have ended, reports say

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive