March 12 (Reuters) - Among major European banks, HSBC and Standard Chartered are most exposed to the conflict in the Middle East, potentially pressuring earnings, J.P. Morgan cautioned on Thursday.
HSBC and StanChart Face Highest Middle East Exposure Among European Banks
European Banks' Exposure to Middle East Conflict
March 12 (Reuters) - Among major European banks, HSBC and Standard Chartered 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 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.
Exposure Estimates for HSBC and StanChart
StanChart's Middle East Exposure
- 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.
- 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.
HSBC's Middle East Exposure
- 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.
- 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.
Risk Assessment and Earnings Pressure
Nature of Portfolio Risk
- 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.
Other European Banks' Exposure
Limited Exposure Among Other Banks
- Other European banks including Julius Baer, Societe Generale, ING, Barclays, Banco Santander, BNP Paribas, Deutsche Bank 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 comes from clients in the Middle East.
Wealth Management Trends
- However, the brokerage expects both UBS and Baer to benefit from multiple wealth-booking centers with high-net-worth individuals (HNIs) diversifying their wealth to protect it from geopolitical risks.
Market Outlook for European Banks
UBS Global Wealth Management's Position
- 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 Venkatraman)
