* Deal could end years of acrimony between neighbours

* Offer represents 45 percent of Bavarian claims

* Other German banks, insurers among main Heta creditors

(Adds details on German creditors, Austrian taxpayers)

By Angelika Gruber

VIENNA, July 7 (Reuters) – Austria offered to pay the German
state of Bavaria at least 1.23 billion euros ($1.36 billion) in
a comprehensive settlement of multiple court cases relating to
Austrian “bad bank” Heta.

A deal could end years of acrimony between the neighbours
dating back to Bavarian bank BayernLB’s 2007
acquisition of the then Hypo Alpe Adria, which had to be
nationalised by Austria two years later.

It would allow BayernLB to draw a line under the last in a
series of ill-fated investments that forced it take a 10
billion-euro bailout in the financial crisis.

“It’s a step in the direction of a settlement,” Austrian
Chancellor Werner Faymann said on Tuesday, adding that a deal
could be done by September.

The 1.23 billion euros represent 45 percent of Bavaria’s
claims, and Vice-Chancellor Reinhold Mitterlehner said Austria
would add 45 percent of any gains Heta might make in future.

The failure of Hypo, whose assets Heta is winding down, has
sparked multiple lawsuits in Austria and Germany with claims and
counter-claims amounting to about 16 billion euros.

The bank had expanded at an unsustainable pace into frontier
Balkan markets in the 2000s, fuelled by financing backed by its
home province of Carinthia in southern Austria.

Nearly 900 million euros’ worth of junior debt issued by
Hypo and guaranteed by Carinthia was wiped out by a special law
that Austria passed last year, enraging investors who thought
they had iron-clad state guarantees.

The law, designed to relieve the burden on Austrian
taxpayers who have already contributed more than 5.5 billion
euros to the cost of Hypo’s failure, also mandated an 800
million euro contribution from BayernLB for Hypo costs.

German banks and insurers are among Heta’s main creditors.

An agreement may also open the door to settlement talks for
other lenders with large Heta exposure such as Pfandbriefbank
, FMS Wertmanagement, Munich Re
and Duesseldorfer Hypothekenbank.

Austria’s FMA financial watchdog took control of Heta in
March and froze more than 11 billion euros in debt repayments
under new EU rules on “bailing in” creditors to relieve
taxpayers of some of the burden.

BayernLB declined comment ahead of a news conference with
its chief executive and the Bavarian finance minister scheduled
for 0930 GMT in Munich.

Heta said in a statement it welcomed the negotiations, in
which it was not involved.

($1 = 0.9067 euros)

(Reporting by Angelika Gruber; Additional reporting by Andreas
Kroener and Arno Schuetze; Writing by Georgina Prodhan; Editing
by Michael Shields and Keith Weir)