AIG's Auction of Asian Arm Failing

Bids for American International Group's(AIG Quote - Cramer on AIG - Stock Picks) Asian arm are due Friday and a number of prospective bidders, including HSBC Holdings(HBC Quote - Cramer on HBC - Stock Picks) and AXA SA have abandoned the process and no further bids may be forthcoming, the Wall Street Journal reports.

AIG initially intended to sell 49% of American International Assurance, which is Asia's largest life insurer with operations in 10 countries. It has since signaled it would sell the entire unit.

The Journal reports the apparent failure of the auction could explain why AIG has asked the U.S. government to restructure the terms of its bailout. A key aspect of the plan involves allowing AIG to repay some of its obligations to the government, or up to $100 billion -- with stakes in operating businesses, such as those in AIA.

People close to potential bidders say AIG has been slow to market the business, and bidders have griped about AIG's price expectations of $20 billion to $40 billion on the unit.

In addition to HSBC and AXA, others initially interested in AIA included China Life Insurance, Bank of China and Prudential PLC(PUK Quote - Cramer on PUK - Stock Picks).

However, none of the parties is now likely to put forth a bid, the Journal reports. A number of the potential bidders value AIA in the $15 billion range, well below the price AIG had been expecting.

AIG has been selling or auctioning off assets and business units to repay some of the bailout loan.

Bloomberg, meanwhile, reports AIG believes its plan to sell assets to repay a loan of $85 billion from the Federal Reserve won't work.

AIG may hand over stakes in some operations directly to the U.S. to reduce its debt, Bloomberg reports, citing a person close to the matter.

The insurer said Monday it is discussing "alternative options" with regulators to keep the firm afloat as it navigates through the financial crisis.

The U.S. government holds nearly an 80% stake in AIG, after loaning it $150 billion in taxpayer dollars to prevent the firm from collapsing last fall.