Dec. 4 (Bloomberg) -- JPMorgan Chase & Co. stopped advising American International Group Inc. on a global plan to sell more than a dozen units, because the job threatened to disqualify the bank from doing business with potential buyers for years, three people with knowledge of the matter said.

JPMorgan, the world's second-biggest merger adviser, is still working with AIG to sell at least three divisions, and may seek the New York-based insurer's permission to work with buyers of other units, the people said, declining to be identified because the new arrangement hasn't been formalized. AIG, rescued from collapse by $152.5 billion in U.S. government aid, is trying to sell as much as $60 billion of assets to pay off debt.

The withdrawal of JPMorgan highlights the thicket of conflicts Wall Street investment bankers face as they vie for roles in dismantling AIG, once the world's largest insurer. AIG's operations, which range from the International Lease Finance Corp. jet-leasing business to Japanese life insurance companies, span about 130 countries. More than a dozen banks have already lined up jobs advising AIG, potential bidders or regulators.

JPMorgan is ``engaging in a little fee calculus,'' said William Cohan, a former investment banker at the firm and author of ``The Last Tycoons,'' about Lazard Ltd. ``In this market, when no one else is lending, they can make a lot of money representing buyers and doing the financing.''

Brian Marchiony, a spokesman for New York-based JPMorgan, declined to comment, as did Nicholas Ashooh, a spokesman for AIG.

Swap Bets

Wrong-way bets in the credit-default swap market drove AIG to the brink of bankruptcy on Sept. 16, when it was bailed out by an $85 billion Federal Reserve loan. Under the original terms, AIG planned rapid asset sales to repay the loan before it came due in two years.

New Chief Executive Officer Edward Liddy hired JPMorgan and Blackstone Group LP's advisory unit as ``global coordinators,'' offering counsel on the company's overall restructuring plan. A handful of other banks won roles handling the sales of individual units.

Liddy sought more time to complete the sales, and on Nov. 10 won an amended agreement with the government that gave AIG three more years to repay loans as part of a bigger aid package.

The extension of the repayment period prompted JPMorgan to seek a new role with AIG because conflicts of interest would have precluded the bank from representing a broad swath of insurance and other financial clients during the entire period, one of the people familiar with the matter said.

Shrinking Market

Bankers are vying for fees as the global credit crisis cripples the merger market, reducing the value of announced takeovers 36 percent to $2.47 trillion this year compared with the same period in 2007. Dozens of planned takeovers have unraveled this year, including BHP Billiton Ltd.'s $66 billion bid for rival miner Rio Tinto Group.

``When there's more deals busting than being done, any crumb will be fought over assiduously,'' Cohan said.

JPMorgan, second only to Goldman Sachs Group Inc. in advising on mergers this year, depends on deals involving financial institutions for about 26 percent of its M&A business, according to Bloomberg data. The bank stopped participating in talks about AIG's overall strategy several weeks ago, the person said, adding that JPMorgan may provide more help to AIG by lending to potential buyers.

Canadian Unit

JPMorgan plans to continue work, already under way, soliciting bids for some specific AIG assets, including the U.S. life insurance and retirement businesses and a Canadian life insurance unit, two of the people said. Gary Ransom, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, valued the U.S. life and retirement businesses at about $20 billion in an Oct. 3 note.

Most of world's biggest investment banks round out AIG's advisory team. Goldman, Citigroup Inc., Merrill Lynch & Co., Deutsche Bank AG, Bank of America Corp. and KBW Inc. have mandates to sell specific AIG units.

UBS AG lined up the sale, announced Dec. 1, of AIG's private bank to an Abu Dhabi investment firm. Lazard was hired to represent the independent directors of Transatlantic Holdings Inc., majority-owned by AIG. Some of AIG's advisers are also working with potential buyers on separate AIG transactions, as are Credit Suisse Group AG and Barclays Plc.

Morgan Stanley has advised the Federal Reserve on the AIG bailout, and Centerview Partners LLP is counseling the New York Insurance Department. Evercore Partners Inc. has done work with a group of AIG shareholders and Perella Weinberg Partners has counseled Maurice ``Hank'' Greenberg, the former AIG CEO who is one of the company's largest private shareholders.

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net

Last Updated: December 4, 2008 13:31 EST