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 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, 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.

* 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.

* 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)