Middle East situation impacting European banks: JP Morgan warns HSBC and Standard Chartered profits facing the greatest pressure.

On Thursday, J.P. Morgan issued a warning that HSBC and Standard Chartered banks have the highest exposure to the risks of the Middle East conflict among major European banks, which could put significant pressure on their profits. Earlier this week, the European STOXX 600 banking index hit its lowest point in three months, falling nearly 6% since the close on February 27th. HSBC's stock price dropped more than 5% on Thursday, while Standard Chartered also fell over 2%. The institution further pointed out that rising energy costs will impact corporate loan exposures, especially in the agriculture, manufacturing, construction, and transportation sectors. Specifically, excluding Turkey and Egypt, J.P. Morgan estimates that Standard Chartered's exposure in the Middle East accounts for about 8% of its total income and 12% of its profit before tax (PBT); while for HSBC, the corresponding income and profit exposure are around 4%. The report noted that if the markets in Egypt, Turkey, and Saudi Arabia are included in the analysis for HSBC, the profit exposure could rise to nearly 9%. However, given that HSBC and Standard Chartered's investment portfolios in the Middle East are mainly focused on high-rated companies, J.P. Morgan emphasized that profit pressure is the core risk rather than credit losses. J.P. Morgan's latest estimates show that HSBC's loan exposure in the UAE, Qatar, and other Middle Eastern regions for the fiscal year 2025 is about $23 billion, accounting for around 2% of its overall loan portfolio. The institution further pointed out that in addition to the regional exposure mentioned above, HSBC's associated loan exposure due to holding a 31% stake in Saudi Aval Bank, as well as its business exposure to multinational clients in other global entities, will continue to exist. J.P. Morgan stated that Standard Chartered has disclosed a loan size of about $9 billion in the UAE for the fiscal year 2025, accounting for nearly 2% of its total loans as of the third quarter, the bank's UAE branch has confirmed loan balance of approximately $6 billion. For other European banks, J.P. Morgan pointed out that the Middle East risk exposure of Swiss Baosheng Media Group Holdings Ltd Bank, French Industrial Bank, ING Group, Barclays PLC Sponsored ADR (BCS.US), Banco Santander S.A. Sponsored ADR (SAN.US), BNP Paribas, and Deutsche Bank Aktiengesellschaft (DB.US) is limited, with their income and profit shares both less than 1%. It is noteworthy that Middle Eastern clients account for about 11% of Swiss Baosheng Media Group Holdings Ltd Bank's assets under management, which is more prominent compared to peers. However, UBS Group AG's global wealth management stated that UBS Group AG and Baosheng Media Group Holdings Ltd bank will benefit from the growth in demand from high net worth individuals (HNIs) for diversified investment strategies to mitigate political risks through multiple wealth management centers. According to a report released by the institution on Wednesday, it downgraded the ratings of European banks to "neutral," with the core logic being that even if energy supply rapidly recovers, apart from short-term rebounds, the upward potential for European bank stock prices remains limited.