HSBC Holdings PLC (LSE:HSBA) and Standard Chartered PLC (LSE:STAN) are the two London-listed banks with the largest operations in the Middle East and Asia, and so face the greatest earnings risk among European lenders from the ongoing regional conflict, according to JP Morgan.
In the first of a new "capital at risk" series examining banks' vulnerability to current global pressures, analyst Kian Abouhossein estimated that the Middle East accounts for around 4% of HSBC's pre-tax profit and roughly 12% of Standard Chartered's – the highest exposures among the European banks the bank covers.
The analyst was quick to stress that credit risk (ie the danger of loans turning bad) was not its primary concern, given that both banks' Middle East books are concentrated in highly-rated corporate and sovereign borrowers.
The bigger risk, he argued, was to earnings.
On the plus side, both banks stand to benefit from the surge in market volatility, as corporate clients rush to hedge their exposure to swinging oil prices and currencies, generating fees for investment banking and trading desks.
Longer term, wealth management flows from the region were likely to shift, the analyst suggested.
Hong Kong is emerging as the relative winner as clients seek stability, with the Chinese enclave the financial centre he is "most excited about" as a global financial growth centre over the next five to ten years.
HSBC shares also took an extra hit on Thursday as they went ex-dividend, stripping out a $0.45 payout and weighing heavily on the FTSE 100.