JP Morgan favours Barclays and Deutsche Bank as Middle East volatility boosts trading outlook for investment banks

Core Viewpoint - JP Morgan identifies Barclays PLC and Deutsche Bank as the most likely beneficiaries of the increasing volatility due to the Middle East conflict, which is expected to enhance trading revenues for globally focused investment banks [1][4]. Group 1: Impact of Middle East Conflict - The direct earnings impact of the Middle East conflict on global banks is limited, as this region currently contributes relatively little to overall profits for most large lenders [1]. - The spike in market volatility is anticipated to act as a tailwind for trading revenues rather than a hindrance, given that most global banks operate wholesale businesses in the region [2]. Group 2: Valuation Preferences - JP Morgan favors European investment banks over their US counterparts based on valuation metrics, with Barclays and Deutsche Bank trading at price-to-earnings multiples of 7.1 times and 7.6 times 2027 earnings, respectively [2]. - In comparison, Goldman Sachs and Morgan Stanley have higher price-to-earnings multiples of 14.9 times and 14.4 times, respectively [2]. Group 3: Preferred Rankings - JP Morgan's preferred ranking among global investment banks includes Barclays, Deutsche Bank, Standard Chartered, Société Générale, UBS, BNP Paribas, HSBC, Morgan Stanley, and Goldman Sachs [3]. - Barclays, Deutsche Bank, HSBC, and Standard Chartered are noted to have been oversold during recent market turbulence [3].