NEW YORK (Bloomberg) — American International Group Inc., the insurer bailed out by the US, was cut to "sell" by Standard & Poor's on the prospect that more investors will bet against the shares after its reverse stock split.

The split, in which stockholders turned in 20 shares for a new one at a higher price, "may ease the mechanics of shorting AIG shares", said Catherine Seifert, an equity analyst at S&P, in a note to investors yesterday on the New York-based insurer. She previously rated the shares "hold".

AIG received a $182.5 billion bailout after the insurer was overwhelmed by losses on bets tied to the housing market. A federal jury rejected the insurer's claims yesterday that a private company run by its former chief executive officer, Maurice (Hank) Greenberg, looted $4.3 billion in stock from the insurer.

"We still view AIG's underlying fundamentals as weak and under pressure, and believe AIG's loss in its lawsuit versus former CEO Hank Greenberg is another negative for the shares," Seifert wrote. She cut her price target to $13 from $40.

AIG fell 55 cents, or four percent, to $13.20 at 11:56 a.m. in New York Stock Exchange composite trading. The insurer has dropped 98 percent in the last 12 months.

Short selling is when hedge funds and other investors borrow shares and then sell them betting their price will fall. If it does, they buy the shares back at the cheaper price, return them to the lender of the shares and keep the difference.