Credit Suisse said the trustees overseeing the U.S. government's stake in American International Group Inc may execute a large scale secondary offering to lower its common equity interest in the company.

Analyst Thomas Gallagher said the trustees may execute a secondary offering through some type of trading mechanism such as an at-the-market offering or a discounted sale to a private investor.

The government could effect a stock swap of AIG's preferred shares for its common equity if the U.S. Treasury is able to reduce its equity interest via a secondary offering or sale of shares, Gallagher said in a note to clients.

While this would further dilute current common shareholders, we see it as perhaps the best course of action given the primary objective of maintaining ratings and right-sizing AIG's capital structure, the analyst, who has a underperform rating and a price target of $15 on AIG stock, added.

AIG's shares were up 3 percent at $47.11 in Wednesday morning trade on the New York Stock Exchange. (Reporting by Brenton Cordeiro in Bangalore; Editing by Pradeep Kurup)