On the face of it, the leadership crisis in Egypt shouldn’t set hearts racing among Middle East financial services professionals about their job security. But with fears of regional contagion rising, there are reasons to believe the job market could be hit.

There’s been no immediate impact hiring, with recruiters we spoke to suggesting that no clients have iced their plans in wake of the Egyptian crisis. But, already there are some signs that a job prospects are looking shaky in some areas.

Equity capital markets

The GCC’s equity capital markets have been floundering for some time now – as Axiom Telecom’s decision to pull its big ticket IPO in December showed. As at Q3 2010, a measly $177m was raised by regional companies through IPOs, according to Ernst & Young.

With investor confidence low, and the regional indices slumping, many firms were concerned about getting fair value. However, there were tentative signs that regional stock markets were on the up this year, and hopes that ECM activity could recover. The Egyptian crisis has stemmed this optimism.

Obviously, the Egyptian index – which fell by 16% over two days last week – has suffered, but other regional indices are feeling a knock-on effect. Yesterday, Dubai fell by 4.32% to a 21-week low, Abu Dhabi slipped by 3.7%, while Saudi is showing some signs of recovery after falling by 6.4% on Saturday.

If this continues, capital markets bankers have every right to feel nervous.

Regional banks

Yes, international banks have the greatest exposure to Egyptian debt, but regional banks should be concerned around the rising costs of insuring government debt across the GCC.

The five-year credit default swap in Saudi Arabia jumped by 29bps to 120bps, Bahrain by 28bps to 220bps and Qatar by 17bps to 110bps, according to data from Markit.

As Gavin Nolan of Markit told the Guardian: “Fears of contagion are increasing, as investors wonder if the events in Egypt will spread across the Arabian peninsula.”

Why is this a concern? Let’s look the recent woes in Ireland as an extreme example where in November CDS spreads hit 600bps. With concerns over sovereign debt, the country’s banks faced an exodus of corporate deposits – AIB lost €13bn, while Bank of Ireland saw €10bn depart – and the institutions were forced to go cap in hand to the European Central Bank. At the time of writing, speculation is mounting as to just how deep the job cuts will be within Ireland’s banks.

We’re still a long way from this in the GCC, of course, (despite concerns over a bank run in Egypt) but at a time when non-performing loans are decreasing and hopes of a recovery for regional banks are emerging, this is another potential kick in the teeth.

Is the GCC relatively sheltered?

However, despite recent impact on GCC markets, some banking analysts have suggested that the overall affect will be minimal.

As Murat Toprak, emerging FX strategist at HSBC said: “In our view the likelihood of any instability in the GCC is very limited. The political and economic situation is very different. The reason behind the protests in Egypt is more about the economic situation.”