March 12 (Reuters) - Among major European banks, HSBC (HSBA.L) and Standard Chartered (STAN.L) are most exposed to the conflict in the Middle East, potentially pressuring earnings, J.P. Morgan cautioned on Thursday.
Earlier this week, the STOXX 600 Banks index (.SX7P) touched a three-month low, having fallen nearly 6% since the last close of February 27. HSBC dropped over 5% on Thursday and StanChart fell more than 2%.
Rising energy costs will affect corporate lending exposure, particularly across agriculture, manufacturing, construction and transport sectors, the brokerage said.
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<li>Excluding Turkey and Egypt, the brokerage forecast Middle East exposure for StanChart’s revenue and profit before tax (PBT) to be about 8% and 12%, respectively.</li>
<li>For HSBC, it estimates revenue and PBT exposure at about 4%.</li>
<li>PBT exposure could go up to nearly 9% when including Egypt, Turkey, and Saudi Arabia markets for HSBC, it said.</li>
<li>However, since their Middle East portfolios are concentrated among high-rated corporates, J.P. Morgan sees earnings pressure as primary risk rather than credit losses.</li>
<li>J.P. Morgan estimates HSBC’s Middle East lending exposure, largely comprising UAE and Qatar, of about $23 billion for fiscal 2025, worth about 2% of its total loan portfolio.</li>
<li>The brokerage also expects additional loan exposures relating to the lender’s 31% stake in Saudi Awwal Bank and multinational client exposure in other global entities.</li>
<li>StanChart has disclosed about $9 billion of loans to the UAE in fiscal 2025, equivalent to nearly 2% of its total loan book, with about $6 billion of loans booked in its UAE branches as of third quarter, J.P. Morgan said.</li>
<li>Other European banks including Julius Baer (BAER.S) , Societe Generale (SOGN.PA) , ING (INGA.AS) , Barclays (BARC.L) , Banco Santander (SAN.MC) , BNP Paribas (BNPP.PA) , Deutsche Bank (DBKGn.DE) have limited exposure with less than 1% for both revenue and profit, J.P. Morgan said.</li>
<li>About 11% of assets under management for Julius Baer (BAER.S) comes from clients in the Middle East.</li>
<li>However, the brokerage expects both UBS (UBSG.S) and Baer to benefit from multiple wealth-booking centers with high-net-worth individuals (HNIs) diversifying their wealth to protect it from geopolitical risks.</li>
<li>Separately, UBS Global Wealth Management downgraded European banks to “neutral” in a note on Wednesday, citing limited scope for sustained gains beyond an initial rebound even if energy flows are restored swiftly.</li>
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- J.P. Morgan identified HSBC and Standard Chartered as the European banks most vulnerable to the Middle East conflict, potentially impacting their earnings.  
- While J.P. Morgan estimates HSBC's Middle East lending exposure at about $23 billion and StanChart's at $9 billion, both banks' portfolios are concentrated in high-rated corporates, posing earnings risks rather than credit loss risks.  
- Other European banks have minimal exposure, under 1% for revenue and profit, while UBS and Julius Baer may benefit from high-net-worth clients diversifying assets amid geopolitical uncertainties.

Reuters

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HSBC, StanChart most exposed to Mideast conflict among European banks, J.P. Morgan warns