July 20 (Bloomberg) -- Morgan Stanley, the world’s third- biggest stock underwriter, stands to reap tens of millions of dollars for advising the Federal Reserve Bank of New York on the dismantling of American International Group Inc.

Morgan Stanley is guaranteed a role as global coordinator in any initial public offering of AIG units, according to documents released July 17 by the New York Fed on its Web site. The bank will earn percentage fees if AIG sells any of 11 businesses, in addition to an initial $4 million payment and $2.5 million a quarter.

The New York Fed has turned to banks and other financial firms to auction assets and manage portfolios after helping to stave off the collapse of the financial system. AIG got an $85 billion credit line in September after losses tied to housing market bets, a rescue that has swelled to $182.5 billion.

“The Fed will get in trouble politically for this because the very people seen to be responsible for the mess are getting paid to fix it,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “The Fed really has no other choice. They don’t have the depth of talent to manage something like this.”

Morgan Stanley received $10 billion in federal bailout money, which the bank has repaid.

The IPO fees may be the most lucrative part of Morgan Stanley’s arrangement. The bank may earn about $72 million on the public listing, for example, of AIG’s American International Assurance, an Asian insurer to be listed in Hong Kong, according to calculations based on figures disclosed by the New York Fed.

$8 Billion IPO

The IPO, slated to take place next year, may raise as much as $8 billion, people familiar with the matter said in May. Deals of that size in Hong Kong have typically yielded their underwriters a total of 2.5 percent of the IPO, and Morgan Stanley, as co-global coordinator, might get about 36 percent of that amount, according to the Fed document. Deutsche Bank AG was selected as AIA’s other global coordinator.

MetLife Inc. offered $11.2 billion for AIG’s American Life Insurance Co. unit earlier this year, people familiar with the bid said in February. The talks haven’t led to a transaction yet, and AIG announced plans this week to sell shares of Alico to the public. A sale of the business could earn Morgan Stanley about $23 million.

Morgan Stanley will also bill the New York Fed for expenses including travel costs and outside advisers, the bank said, and must get permission for expenses beyond a total of $5 million.

Financial Crisis

Morgan Stanley, which typically advises private corporations, started working with the Treasury when the financial crisis struck last year, counseling the agency on the government takeovers of mortgage companies Fannie Mae and Freddie Mac for $95,000.

The fees to Morgan Stanley are in addition to payments that Blackstone Group LP is earning as adviser to AIG. Investment banks including UBS AG and JPMorgan Chase & Co. are being paid to handle auctions of individual units. Mark Lake, a Morgan Stanley spokesman, declined to comment, and Deborah Kilroe of the New York Fed didn’t immediately return a call.

AIG has struck deals to raise more than $6.7 billion since the rescue, finding buyers for assets including a U.S. auto insurer, an equipment guarantor and a Japanese office tower. The insurer has yet to complete any of the transactions that would earn Morgan Stanley a performance fee.

Credit Line

The government’s rescue of AIG includes a $60 billion credit line, $52.5 billion to buy mortgage-linked assets owned or insured by the company, and an investment of as much as $70 billion. AIG plans to reduce its debt under the credit line by $25 billion by handing over stakes in two non-U.S. life insurance units, the insurer said last month. AIG has tapped about $43 billion from the line as of July 15.

About $50 billion flowed to banks including Goldman Sachs Group Inc., Societe Generale SA and Deutsche Bank AG since the bailout to help settle AIG’s derivative contracts with the firms tied to mortgages. Morgan Stanley wasn’t among the top 10 recipients according to data released by the insurer March.

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: July 20, 2009 07:58 EDT