American International Group Inc and the Treasury are considering whether to drop or scale back a large public offering of AIG shares, because of the recent decline in the bailed-out insurer's share price, Financial Times reported on Tuesday, citing people close to situation.

AIG shares, already under pressure this year, have been hurt in the last few days by reports of infighting between the government and bankers over where to price a secondary offering of some of the government's stock.

Sources involved told the business daily that the most likely outcome of the deliberations would be for the offering to proceed at a smaller size and closer to the Treasury's break-even point.

The decision is expected to be announced on Wednesday to coincide with AIG's annual meeting, the paper said.

The Treasury holds 92.11 percent of AIG and has a break-even point of about $28.72 per share on the stock.

Selling shares at a loss would be a black eye for Treasury, but the government is under pressure to exit its crisis-era investments in private companies and raise as much money as it can before it runs up against borrowing limits.

As it stands, 95.35 percent of AIG shares sit with three holders -- the government, Bruce Berkowitz's Fairholme Capital Management and former AIG Chief Executive Hank Greenberg's Starr International.

AIG was not immediately available for comment.

AIG's shares closed at $29.62 on Tuesday on the New York Stock Exchange. They have fallen nearly 40 percent so far this year.

(Reporting by Thyagaraju Adinarayan; Editing by Steve Orlofsky)

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