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.
* Excluding Turkey and Egypt, the brokerage forecast MiddleEast 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 about4%. * PBT exposure could go up to nearly 9% when includingEgypt, Turkey, and Saudi Arabia markets for HSBC, it said. * However, since their Middle East portfolios areconcentrated among high-rated corporates, J.P. Morgan seesearnings 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 forfiscal 2025, worth about 2% of its total loan portfolio. * The brokerage also expects additional loan exposuresrelating to the lender's 31% stake in Saudi Awwal Bank andmultinational client exposure in other global entities. * StanChart has disclosed about $9 billion of loans to theUAE in fiscal 2025, equivalent to nearly 2% of its total loanbook, with about $6 billion of loans booked in its UAE branchesas of third quarter, J.P. Morgan said. * Other European banks including Julius Baer, SocieteGenerale, ING, Barclays, Banco Santander, BNP Paribas, DeutscheBank have limited exposure with less than 1% for both revenueand profit, J.P. Morgan said. * About 11% of assets under management for Julius Baer comesfrom clients in the Middle East. * However, the brokerage expects both UBS and Baer tobenefit from multiple wealth-booking centers with high-net-worthindividuals (HNIs) diversifying their wealth to protect it fromgeopolitical risks. * Separately, UBS Global Wealth Management downgradedEuropean banks to "neutral" in a note on Wednesday, citinglimited scope for sustained gains beyond an initial rebound evenif energy flows are restored swiftly.(Reporting by Kanchana Chakravarty in Bengaluru; Editing by Janane Venkatraman)
