NEW YORK (Bloomberg) — The Federal Reserve Bank of New York and American International Group Inc. agreed to shoulder as much as $450 million in losses tied to the insurer's Japan real estate bets as part of the sale of a division to MetLife Inc.

MetLife won an accord to split most declines on $1 billion in commercial mortgages included in the $15.5 billion purchase of the AIG unit, according to a MetLife regulatory filing and the company's chief financial officer. A corporate vehicle owned by the Fed and New York-based AIG will use MetLife stock gained in the sale to pay for future real estate losses, reducing the assets left to repay taxpayers, said two people with knowledge of the arrangement.

AIG's Japan mortgage holdings were deemed a "more troubled asset" by MetLife, which is also indemnified from losses on one of the UK businesses it will acquire in the purchase of American Life Insurance Co. AIG said March 8 it is divesting Alico, which operates in more than 50 countries including Japan, to pay down bailout debts on a $60 billion Fed credit line.

"You have to ask yourself, 'does the American taxpayer have any hope of getting their money back any other way besides selling this business?'" said William Cohan, a former JPMorgan Chase & Co. banker and author of "House of Cards," about the financial crisis. An agreement for one side to retain some risk is typical in deals "when the buyer and seller have a difference of opinion about an asset," he said.

The New York Fed agreed to the five-year, loss-sharing deal because it expects to be repaid on its $9 billion investment in the Alico vehicle, said one of the people familiar with the regulator's discussions who declined to be identified because some transaction details are private. AIG will use $6.8 billion in cash from the Alico sale to help redeem the Fed stake and then repay the remaining $2.2 billion within 18 months after completing the deal by selling MetLife stock, the person said.

MetLife will absorb the first $100 million of losses on the Japan portfolio, which it is acquiring in the Alico purchase, scheduled to be completed by year-end. Insurers invest premiums from customer policies in assets including bonds, equities and real estate and use proceeds to pay claims. Tokyo rents on Grade A office space fell 31 percent in 2009, according to real estate services firm CB Richard Ellis Group Inc.

"Those were sort of a more troubled asset class for them," MetLife CFO William Wheeler said of the Japan mortgages on a March 8 conference call. "We and the Alico special purpose vehicle will share losses over and above" the first $100 million up to the face value, Wheeler said, "though obviously they're not going to get wiped out".

Deborah Kilroe, a spokeswoman for the New York Fed, and Christina Pretto of AIG declined to comment. Christopher Breslin of New York-based MetLife had no immediate comment. AIG's $182.3 billion government bailout, which began in September 2008 and was revised three times, includes as much as $52.5 billion to buy separate mortgage-linked assets the firm guaranteed for banks or held through its securities-lending programme.

"What does the Fed know about Japanese real estate?" said William Black, associate professor of economics and law at the University of Missouri-Kansas City and a former U.S. bank regulator. "Commercial real estate is notoriously highly risky and was one of the causes of the twin bubbles in Japan, the other being the stock market."