American International Group Inc
The talks with the government include the possibility of additional funds for the insurer and trading debt for equity, another source said.
The situation is fluid, and other options are being discussed, the source said, adding that it was unclear where the talks would lead.
CNBC, which first reported the development, said the losses to be reported Monday were due to writedowns on commercial real estate and other assets. It said the insurer's board will meet next Sunday to work out an agreement with the government.
In case they do not reach a deal, AIG's lawyers at Weil, Gotshal & Manges LLP were preparing for the possibility of bankruptcy, CNBC said.
While AIG has retained Weil Gotshal, the insurer has no plans to file for bankruptcy, one source told Reuters.
AIG said in a statement it had not yet reported results and would provide an update when it does so in the near future.
We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG's financial challenges, AIG said.
U.S. Treasury officials declined to comment. Weil could not be reached immediately for comment.
AIG shares closed down 1 cent to 53 cents on the New York Stock Exchange.
AIG has already gone to the government twice for help. It was first rescued in September after bad mortgage bets left it on the verge of collapse.
The bailout swelled to about $150 billion in November, when the Federal Reserve and U.S. Treasury stepped in with more cash to buy mortgage assets that had left AIG deeply in the red, and to ease the terms of its loan repayment.
The government action in November came as AIG posted a $24.47 billion quarterly loss, its largest ever, hurt by writedowns on assets linked to subprime mortgages and capital losses.
AIG has said it plans to sell all assets except its U.S. property and casualty business, foreign general insurance, and an ownership interest in some foreign life operations, as it looks to raise money to pay back the government.
(Editing by Richard Chang and Jeffrey Benkoe)
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