REFILE-UPDATE 2-Anglo Irish Bank prefers split to wind-down

By Andras Gergely

DUBLIN, May 7 (Reuters) - Splitting nationalised Anglo Irish Bank into a 'good' and 'bad' bank remains the least costly option open to the state despite pressure to wind it down over time, the bank's new chairman said on Friday.

Anglo Irish, which is being propped up by massive sums of state capital and which in March posted the biggest loss in Irish corporate history, is negotiating with the European Commission about its restructuring plan.

Alan Dukes, who is taking over as chairman next month, said the EU had asked the bank to consider a 20-year wind down as part of those plans, but he did not think that option would be a good one.

'The moment you announce that a bank is being wound down, it doesn't really much matter whether you say are going to do it over 10 years or 20 years,' Dukes told a business lunch.

'The bondholders and depositors will dictate the pace,' Dukes said, adding he would prefer to carve out a small 'good bank' over the course of the next year.

The cost of bailing out Anglo Irish, nationalised in 2009 after getting burnt in a property market crash and a director's loan scandal, last year gave Ireland the biggest budget deficit in the EU compared with the size of its economy.

'People are understandably appalled, as I am, at the cost of getting out of this,' Dukes, Ireland's Finance Minister during the mid 1980s, told reporters on the sidelines of the event.

Anglo, which has received over 12 billion euros ($16.1 billion) of state aid with another potential 10 billion promised, will transfer half of its loan book to the National Asset Management Agency, Ireland's 'bad bank' set up to cleanse bank's balance sheets of risky property loans.

It wants to set up a bad bank of its own and keep the remaining assets for a lender that can remain open.

'Winding the bank down is loss all the way. (The choice) seems to me a no brainer,' Dukes said.

The government has come under pressure from politicians, including from opposition party Fine Gael that Dukes used to lead, to close down Anglo Irish, but Dukes said those voices were 'part of the national psychosis'.

(Writing by Padraic Halpin and Andras Gergely; Editing by David Holmes and Erica Billingham)

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