By Luiza Ilie and Sandor Peto
BUCHAREST/BUDAPEST (Reuters) - Romania's stock market plunged 12 percent toward its worst day on record on Wednesday after the country's government announced shock plans to tax banking assets and cap gas prices.
The move instantly wiped out what had been one of Europe's best market performances of the year and caused trouble as far afield as Austria where banks such as Erste (VI:ERST) and Raiffeisen (VI:RBIV) that operate in Romania fell heavily.
The trigger was an announcement late on Tuesday by Romania's finance minister for a "tax on greed" that will cap money market lending rates to 1.5 percent.
There was also a plan to limit gas prices, enforce a turnover tax for energy and telecoms firms and enable Romanians to pull out of mandatory private pension funds after contributing for five years.
Bucharest's bluechip BETI bourse (BETI) fell 12.2 percent, with lenders Banca Transylvania (BX:ROTLV) and French Societe Generale (PA:SOGN) unit BRD Group shedding 18 percent and 10.3 percent, respectively.
Romania's centrist President Klaus Iohannis and investors slammed the measures, saying they would hit consumers and banks and urged the government to scrap the plans.
"This avalanche of fiscal measures ... is unacceptable and the symptom of a fracture between the government and economic agents," said the Coalition for Romania’s Development, which groups the country's largest investors’ associations.
The American Chamber of Commerce called them "irresponsible and reckless," and said they were "throwing the market into complete chaos".
The 12.2 percent slump saw the BETI match it worst day on record which was back in January 2009 and made an already bad year look worse for Central European markets, where only Bucharest had notched up any visible gains before its plummet.
So far this year Prague's benchmark (PX) has shed 7 percent while Warsaw's WIG20 (WIG20) has slid almost 6 percent as funds flowed into the rallying dollar from emerging market assets.
Bucharest's government went back and forth on its tax intentions last year, provoking more uncertainty among investors and the leu currency having already enforced consumption-friendly wage and pension hikes at the expense of infrastructure investment.
Morgan Stanley (NYSE:MS) said the banking tax implied a reduction of overall profits of more than 50 percent.
While other Central and Eastern European states have enforced new banking taxes in recent years, none had been tied to interbank rates.
"Linking a bank tax on ROBOR developments is also unprecedented and it could impair the central bank's control over its monetary policy," BCR said.
In Austria, Erste Bank , which gets 8.4 percent of its revenues from Romania's biggest bank Banca Comerciala Romana, saw its shares tumble as much as 10 percent, and remained the day's worst STOXX 600 faller despite recouping some losses.
Raiffeisen Bank, which has around 6 percent of its assets in Romania according to figures published last month, was last trading down 3.8 percent.
Romania's measures deepened Prague's losses as well.
The Prague bourse's main index fell 2.2 percent to its lowest level since July 2017 on Wednesday, driven by an 8 percent fall Erste's Czech-listed shares. (PR:ERST).
Budapest's BUX also dipped (BUX) though Warsaw (WIG20) bucked the regional trend with a slight gain.
In the currency markets, Romania's leu (EURRON=) shed 0.4 percent against the euro to trade at 4.6525, the zloty (EURPLN=) firmed 0.1 percent and the forint (EURHUF=) was steady as focus also turned to the U.S. Federal Reserve's final meeting of the year.
Signals that U.S. rate rises will slow next year could make emerging market assets look relatively more attractive. The recent steep drop in oil prices has helped corset inflation in Central Europe, reducing pressure on central banks to raise their interest rates.