HSBC and StanChart Most Exposed to Mideast Conflict
J.P. Morgan warns that HSBC and StanChart face earnings pressure from Middle East exposure. Other major European banks show limited risks under one percent.
J.P. Morgan has cautioned that HSBC Holdings plc and Standard Chartered PLC are the most exposed European banks to the conflict in the Middle East, potentially impacting their future earnings. Earlier this week, the STOXX 600 Banks index reached a three-month low, having declined nearly 6% since late February. On Thursday, shares of HSBC dropped by more than 5%, while Standard Chartered fell over 2%.
The brokerage noted that rising energy costs are expected to influence corporate lending across several sectors, including agriculture, manufacturing, construction, and transport. For Standard Chartered, excluding Turkey and Egypt, Middle East exposure is forecast to be approximately 8% of revenue and 12% of profit before tax (PBT). For HSBC, the brokerage estimates revenue and PBT exposure at about 4%, though this could rise to nearly 9% when including markets in Egypt, Turkey, and Saudi Arabia.
Despite these figures, J.P. Morgan views earnings pressure as the primary risk rather than credit losses, as the regional portfolios are concentrated among high-rated corporate clients. HSBC's lending exposure in the United Arab Emirates and Qatar is estimated at $23 billion for fiscal 2025, or about 2% of its total loan portfolio. Standard Chartered has disclosed about $9 billion in loans to the United Arab Emirates for fiscal 2025, with $6 billion booked in its branches as of the third quarter.
Other European banks, including JULIUS BAER GROUP LTD, ING Groep N.V., Barclays PLC, Banco Santander, S.A., and Deutsche Bank AG, have limited exposure, with less than 1% for both revenue and profit. While 11% of assets under management for Julius Baer come from clients in the Middle East, both it and UBS Group AG are expected to benefit as high-net-worth individuals diversify their wealth into multiple wealth-booking centers to protect against geopolitical risks. Separately, UBS Global Wealth Management downgraded European banks to neutral, citing limited scope for sustained gains beyond an initial rebound even if energy flows are restored quickly.
