Sept. 21 (Bloomberg) -- American International Group Inc.’s U.S. rescue package, revised three times in the past year, would be eased again under a proposal being pushed by the leader of the House Oversight and Government Reform Committee.

Representative Edolphus Towns may start talks with Treasury Department and Federal Reserve officials about the plan from Maurice “Hank” Greenberg, the former AIG chief executive officer, said a committee aide. Greenberg visited Towns, the New York Democrat who leads the committee, on Sept. 17, according to the staffer, who declined to be identified because the meeting was private. AIG surged 21 percent in New York trading.

“I’ve directed the committee staff to take a look at Hank Greenberg’s proposal to restructure the debt, because I think it is something to which we should give serious consideration,” Towns said today in an e-mailed statement. Congress should help AIG recover “and that means looking at a number of options, including restructuring the federal loans.”

AIG, rescued a year ago with a government lifeline that swelled to $182.5 billion, overhauled management last month, naming Robert Benmosche CEO and Harvey Golub as chairman. Benmosche has said he won’t be rushed by regulators into selling assets at unfavorable prices to repay the U.S. and that he will seek advice from Greenberg, who built AIG over 38 years into the world’s largest insurer before being forced to retire in 2005.

Credit Line

Greenberg’s proposal includes cutting the government’s stake in New York-based AIG from almost 80 percent, trimming the interest rate on loans, and giving the firm more time to repay debt, said the aide. AIG is charged the three-month London interbank offered rate plus 3 percentage points on a Fed credit line, which it has four years to repay. The original credit line was for two years and charged a higher interest rate.

AIG rose $8.49 to $48.40 at 4 p.m. in New York Stock Exchange composite trading. The stock has more than tripled since the end of July. Benmosche, 65, said last month that AIG will repay its U.S. debts and “we hope we will be able to do something for our shareholders as well.” Cathy Seifert, equity analyst at Standard & Poor’s, raised her recommendation on AIG to “hold” today on prospects the rescue may be revised.

The insurer is “open to constructive efforts by Mr. Greenberg or others that assist the company in restoring value to shareholders and repaying the taxpayer,” said Mark Herr, a spokesman for AIG, in an e-mailed statement today.

Deborah Kilroe of the Federal Reserve Bank of New York, Treasury’s Meg Reilly and Beth Dozier, a spokeswoman for Greenberg, declined to comment.

‘Long-Term Solution’

Greenberg, 84, has called for delaying asset sales and restructuring the bailout in regulatory filings and media appearances, including a Sept. 15 interview on CNBC.

Towns, 75, said regulators have pressured AIG to liquidate the company at “fire-sale” prices. “What’s the rush if we can get a better return on our money a few years down the road and save a major company and thousands of jobs?” he said.

Representative Brad Sherman, a California Democrat on the House Financial Services Committee, said he “couldn’t imagine” that his committee would support a revised rescue.

“The effort is clear: Take more risks with U.S. taxpayer dollars,” Sherman said in an interview. “If there are profits to be made, they go to enormous bonuses for executives and big money for Greenberg. If there are losses, they’re borne by the people in my district and other districts.”

Asset Sales

AIG has struck deals to sell more than two dozen assets for a total of about $9.8 billion since its rescue last year, including a U.S. auto insurer, a Japanese office tower and a stake in reinsurer Transatlantic Holdings Inc. AIG has been unable to sell assets including its plane-leasing unit.

“AIG’s ability to restructure its business and repay the government is unclear at this time,” the U.S. Government Accountability Office said today in a report. Federal assistance “has helped stabilize AIG’s financial condition,” the GAO said in the report.

Edward Liddy, who took the CEO and chairman roles after AIG’s initial September 2008 rescue, told employees in his first month that he planned to divest units before they lost value, saying that “every day we don’t do something, it will hurt us.” He initially expected that AIG could repay the U.S. early.

Liddy said in October that AIG would divest most businesses excluding property-casualty insurance. He later reacted to the difficulty in selling assets by saying AIG would hand over stakes in two of its biggest non-U.S. life insurance units to pay down the Fed credit line by about $25 billion.

‘Moral Hazard’

“We’re still looking to get paid back, and this may improve that possibility,” said Bill Bergman, an analyst at Morningstar Inc. “There are reasons to be concerned; this is an institution that probably should have been closed a year ago. There’s a moral hazard issue from the long-term perspective: Are we laying the basis for future problems?”

Golub, the former American Express Co. CEO, also visited Towns last week to help repair AIG’s relations with Congress, the aide said. Liddy had been grilled by lawmakers about bonuses during congressional hearings and reported the biggest quarterly loss of any U.S. corporation. Liddy stepped down last month.

Golub, 70, told Towns that he expected AIG will still be a large company after repaying its debts, the aide said. Golub was concerned about retaining employees who may be lured to rivals that face fewer compensation restrictions, said the staffer.

Near Collapse

AIG was pushed to the brink of failure last year after trading partners demanded billions in payments on derivatives tied to mortgage securities.

The Fed and Treasury said in a joint statement on March 2, the date of the last rescue, that “the long-term solution for the company, its customers, the U.S. taxpayer, and the financial system is the orderly restructuring and refocusing of the firm.” Stabilizing the company “will take time and possibly further government support, if markets do not stabilize and improve,” the regulators said.

Greenberg, who controls one of the biggest stakes of AIG shares, had been locked in legal disputes with the insurer since the company’s board pushed him out in 2005 during a probe into reinsurance by then-New York Attorney General Eliot Spitzer. After Benmosche started as CEO, AIG said disputes would be solved in arbitration.

The insurer’s profit in the second quarter was its first since 2007. AIG had lost more than $100 billion during the previous six quarters.

The company’s bailout includes a $60 billion Fed credit line, a Treasury Department investment of as much as $70 billion, and $52.5 billion to buy mortgage-linked assets. AIG owes more than $39 billion on the credit line as of last week, and has tapped the Treasury for more than $40 billion.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: September 21, 2009 16:36 EDT