HSBC, StanChart most exposed to Mideast conflict among European banks, JP Morgan warns

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.

• 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.

• For HSBC, it estimates revenue and PBT exposure at about 4%.

• PBT exposure could go up to nearly 9% when including Egypt, Turkey, and Saudi Arabia markets for HSBC, it said.

• 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.

• 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.

• 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.

• 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.

• 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.

• About 11% of assets under management for Julius Baer BAER.S comes from clients in the Middle East.

• 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.

• 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.

-Reporting by Kanchana Chakravarty in Bengaluru; Editing by Janane Venkatrama/Reuters