American International Group Inc , the insurer rescued by a series of federal bailouts, may have zero equity value due to the risk of more credit default swap losses and the disposal of key assets at low valuations, Citigroup said.

Shares of the company fell 22 percent to $10.22 in early trade Thursday on the New York Stock Exchange. The shares have lost more than 90 percent of their value in the last year.

Potential markdowns in AIG Financial Product unit's regulatory CDS portfolio may result in collateral calls that would again put pressure on AIG's liquidity, Citigroup analyst Joshua Shanker said.

Such collateral calls could also pressure rating agencies to lower their credit ratings for the company, leading to a similar cycle to the one that the company experienced prior to the massive government intervention in the third quarter, Shanker wrote in a research note.

Last month, AIG revised its 2008 annual report to add a new risk factor that shows it may recognize valuation losses on a CDS portfolio if credit markets continue to deteriorate.

At issue is a super senior CDS portfolio held by AIG Financial Products with a notional value of $192.6 billion as of March 31, 2009.

Shanker said despite AIG's efforts in implementing the action plan devised in concurrence with the U.S. government, the uncertainty and risk surrounding AIG remain very real, and, in some ways, more urgent.

The analyst cut the price target on AIG stock to $14 from $36 to adjust for a 1-for-20 reverse stock split by the troubled insurer, and kept a hold rating.

Once the world's largest insurer by market value, AIG nearly collapsed last year because of losses from CDS, a bet on the credit worthiness of a debt issuer. The company is now selling assets to repay the government after a bailout totaling about $180 billion.

WOULD ASSET SALES HELP?

The analyst said while AIG may be able to repay U.S. investment and some debt with core asset sales, the remaining businesses may be those that generate lower return on equity, handicapped by a high debt burden.

In June, the federal government agreed to accept $25 billion of preferred stock in two AIG businesses as partial repayment of debt.

AIG had said the agreement positions its two businesses -- American International Assurance Co Ltd (AIA) and American Life Insurance Co (Alico) -- for initial public offerings, depending on market conditions.

Shanker said it expects AIG to carve out its commercial property and casualty business in the form of an initial public offering in 2010.

The analyst, however, said there is high probability that selling off all operations just to cover debt will leave the holding company with little or no equity.

AIG had already agreed to sell a 98 percent stake in its Russian consumer finance business to Banque PSA Finance SA, a unit of France's Peugeot SA

, and is selling its credit card business in Taiwan to Far Eastern International Bank.

AIG's bid to sell its Taiwan insurance unit, Nan Shan LIfe, attracted bids from global investors Carlyle and Primus, among others and could fetch more than $2 billion.

(Editing by Himani Sarkar)

Goldman sachs Aig Citigroup