Shares of American International Group Inc fell 4 percent on Wednesday as investors recognized that the U.S. government's exit from the insurer could take a long time.

The U.S. Treasury sold 200 million shares, or 15 percent of its AIG stake on Tuesday, but still has 77 percent ownership of the insurer and another 1.5 billion shares to sell before it is fully out of its investment.

The fact remains that the Treasury now has 77 percent and they are going to have to sell that, said Standard & Poor's equity analyst Cathy Seifert. Seifert has a buy rating on the stock but said that there is still a fair amount of risk embedded in the AIG turnaround story.

Two and a half years ago, AIG was on the brink of bankruptcy. Now, after government bailouts totaling $182 billion, Washington is beginning to get its money back.

The question now is how quickly it will be able to sell its remaining 1.5 billion shares and whether the investment, overall, will be profitable.

There is also a question of how much of the beleaguered insurer's stock investors want. The government has the political ambition and intention to reduce its holdings to zero, said Joseph Schuster, founder of IPOX Schuster LLC, but added: The stock needs to be absorbed by the market.

Chief Executive Officer Robert Benmosche has said he expects the government to be out of its AIG position by mid-2012. Fitch Ratings said recently its own models for the company assume the government is out by the end of 2012.

A Treasury official said on Tuesday night that there was no specific timetable for the exit. He said that a full accounting would have to wait until the Treasury completes its exit, but he said he was hopeful the government would break even.

The government did not rescue AIG with the intention of turning a profit but to stem a worsening financial crisis in late 2008.

So far, the government is in the money: Tuesday's share sale, which included 100 million shares sold by AIG, came at $29 a share, higher than the average price of $28.73 the Treasury needs to break even and at a 1.6 percent discount to Tuesday's close.

Tuesday's sale helps Treasury move closer to its break-even, and it raised $5.8 billion against the $47.5 billion needed -- but, broadly speaking, AIG's shares have been trending downward. Over the course of the year, they have lost about 45 percent of their value.

AIG shares closed down 4 percent at $28.28 on Wednesday on the New York Stock Exchange.

Demand for AIG shares has not been as strong as some originally thought. The Treasury and the company agreed only earlier this month on the size of Tuesday's offering but banking sources suggested earlier this year that the share sale could raise $10 billion to $20 billion.

Underwriters on the offering were led by Bank of America Merrill Lynch, Deutsche Bank Securities, Goldman Sachs & Co and JPMorgan.

(Reporting by Clare Baldwin; Editing by John Wallace, Gary Hill)

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