BERLIN, June 28 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)