Citigroup said there is a high probability that American International Group Inc's equity value is zero, given the risk of more credit default swap (CDS) losses and the management's eagerness to dispose of key businesses at low valuations.

Potential markdowns in AIG Financial Product unit's regulatory CDS portfolio may result in collateral calls that would again put pressure on AIG's liquidity, Citigroup said.

Such collateral calls could also pressure rating agencies to lower their credit ratings for the company, leading to a similar cycle to the one that the company experienced prior to the massive government intervention in the third quarter, Citigroup said.

The brokerage said while AIG may be able to repay U.S. investment and some debt with core asset sales, the remaining businesses may be those that generate lower return on equity, handicapped by a high debt burden.

Citigroup said despite AIG's efforts in implementing the action plan devised in concurrence with the U.S. government, the uncertainty and risk surrounding AIG remain very real, and, in some ways, more urgent.

Once the world's largest insurer by market value, AIG nearly collapsed last year because of losses from CDS, a bet on the credit worthiness of a debt issuer. The company is now selling assets to repay the government after a bailout totaling about $180 billion.

The brokerage cut its price target on AIG stock to $14 from $36 to adjust for a 1-for-20 reverse stock split by the troubled insurer, and kept a hold rating.

Shares of the company were down 4 percent at $12.57 Thursday in trading before the bell. The stock closed at $13.10 Wednesday on the New York Stock Exchange. (Reporting by Supantha Mukherjee in Bangalore; Editing by Himani Sarkar)