UPDATE 1-Anglo Irish expects EU backing for plan in Sept

By Padraic Halpin

DUBLIN, Aug 5 (Reuters) - Anglo Irish Bank expects to agree 'in principle' with the European Union in September on a plan to split into a 'good' and 'bad' bank, the chief executive of the nationalised lender said on Thursday.

Anglo, nationalised last year after deposit and loan scandals and exposure to a property market crash, submitted its latest restructuring plan to the European Commission in May with the preferred option to split the bank in two.

Chief Executive Mike Aynsley had told Reuters in June that he expected a preliminary EU verdict by late July or early August, but he told staff on Thursday that work still had to be done.

'We had hoped by now to be in a position to announce an 'in principle' agreement with the EC for the bank's split,' Aynsley told staff in a presentation seen by Reuters.

'However, summer is upon us and it will likely be September now before all the necessary processes are worked through.'

The bank will eventually need 22 billion euros ($27 billion) of state capital.

Dublin will need to add to the 14.3 billion already provided to Anglo as it moves risky loans -- amounting to around half of its total loan book -- to the National Asset Management Agency (NAMA), the country's 'bad bank.'

Aynsley said 10 billion to 15 billion euros worth of performing loans from the bank's non-NAMA loan book of around 35 billion would be eligible for its own 'good' bank and it would evaluate them comprehensively so as further state aid is not required.

'It is conceivable that by the time we get through this process the final transfer amount could be closer to 10 rather than 15 billion euros,' he said.

'The critical point here is that we must get it right. We cannot afford to transfer loans to BankCo (the 'good' bank) that are in any way marginal and therefore have the capacity to require further state aid should they deteriorate.'

He said he was targeting an operational split by the end of this year and a full physical split by the end of next.

The cost of bailing out Anglo last year gave Ireland the biggest budget deficit in Europe. The central bank said last week that state aid provided this year could push the deficit close to 19 percent of gross domestic product this year from 14 percent in 2009.

Aynsley, who took charge of the bank less than a year ago, said the past management left a lot to be desired.

'Looking back, it is now very clear to me that I could never have accurately foreseen the extent of the carnage wrought by the practices of previous management and the impact it would continue to have on the bank throughout my first year.'

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