BERLIN, June 28 (Reuters) – Bavaria is considering legal
action against Austria to fend off a demand to help shoulder
costs of cleaning up heavily-indebted lender Hypo Alpe Adria
, Sueddeutsche Zeitung newspaper reported on
Saturday, citing a state government minister.

Austria aims to wipe out 890 million euros of subordinated
Hypo Alpe Adria debt guaranteed by the bank’s home province
Carinthia to ensure that investors – not just taxpayers – share
wind-down costs for the nationalised Austrian lender.

Other German investors who stand to lose hundreds of
millions of euros have also protested against the planned debt
cancellation, writing to Austria’s finance minister this week
and urging him to reconsider.

The finance ministry declined to comment on the warning by
German fund managers’ association BVI that the planned move
violated international law and undermined trust in Austria.

Two years after Bavarian state-owned lender BayernLB
acquired Hypo Alpe Adria in 2007, Austria bought the
lender for a symbolic 1 euro ($1.4) to avoid a collapse.

Hypo and Bavaria are fighting multiple lawsuits about 2.3
billion euros that BayernLB left in the Austrian bank when it
was nationalised in 2009.

“We are considering all options” including group legal
action involving other creditors, Bavarian finance minister
Markus Soeder was quoted by German daily Sueddeutsche Zeitung as
saying, likening Austria’s actions to “confiscation”.

Bavaria will seek support from Germany’s Berlin-based
national government and the European Union, Soeder said.

The Austrian finance ministry did not immediately respond to
a request for comment on Saturday.

($1 = 0.7331 Euros)

(Reporting by Andreas Cremer in Berlin and Georgina Prodhan in
Vienna; Editing by Pravin Char)