AIG life insurance operation in the UK is up for sale as the company struggles to repay £35bn Federal loan.

The announcement comes at a time when the UK financial market is in turmoil with growing speculation that Treasury may be forced to take billions of pounds worth of shareholdings in the giant high street banks.

AIG life insurance businesses in South Asia, Japan, Latin America, US and Europe will be the first casualties in the company’s crumbling economic fortune. AIG says it plans to auction them in its biggest sell-off in order to restructure parent company.

In Germany, the market was faced with jittery and the government quickly moved to protect savings accounts valued at £390bn.

German Chancellor Angela Merkel and Finance Minister Peer Steinbrück told depositors that the government would take all necessary measures to guarantee that their savings were protected told the International Herald Tribune.

Steinbrück said: “This is an important signal so that it comes to some calming down, not to reactions that would be out of proportion and would make our crisis management and crisis prevention that much more difficult.”

German savings are protected by a combination of deposit insurance plans and a state fund while public, private and community banks set aside a rescue kitty. The UK Government has however said it will protect deposits up to £50,000.