So, What if the Rumors About Shear Leaving UBS are True?

We have it on fairly good authority that Neil Shear has left UBS. This has not been confirmed by the bank and may therefore be entirely spurious, but it would not be totally surprising: yesterday it emerged that UBS has reorganized its securities division in such a way as to leave Shear without much to do.

If you happen to work at UBS, this is all a bit worrying. Neil Shear, a Morgan Stanley veteran and inveterate FICC banker only joined UBS in January 2010 as global head of securities and was - during his allegedy short time with the bank - associated with one of the most enormous FICC build-outs of modern times.

How enormous? Last year Shear oversaw the recruitment of 420 FICC professionals, of whom 225 were EDs and MDs. His alleged exit and apparent marginalization suggests Carsten Kengeter may have retrospectively decided this was not such a good idea.

What happens next? Will UBS rapidly backpedal and divest itself of all remaining FICC aspirations?

Maybe not.

There was little sign of this last month, when UBS announced its fourth quarter results. Then, CEO Oswald Grubel was insistent that the bank's FICC strategy remained valid and that last year's headcount investment would pay off. In fact, UBS's intention of generating an additional CHF8bn of revenues per annum in order to reduce its cost income ratio to an acceptable level appeared to be predicated on its investment in the FICC coming through.

Other Troublesome Omens

However, if those FICC revenues don't materialise, it could all be a bit disastrous.

Under pressure, Grubel also admitted last month that if the additional revenues aren't forthcoming, UBS will have to cut expenses, "very quickly." CFO John Cryan also said that given the inflexibility of the cost base it might be necessary to emphasise and deemphasise business areas in the investment bank.

Banking analysts are already reckoning on this happening.

Huw Van Steenis at Morgan Stanley is predicting that UBS will have to make, "tough portfolio decisions in 2011," and that it will redouble its efforts to become a category leader in FX, but pull back from US swaps. Worse, Piers Brown and Simon Whitlock at Evolution, think UBS could enhance the return on equity in its investment bank by 3 percentage points if it reduced the size of its FICC business by 30%.

Shear's alleged departure may suggest Carsten Kengeter is reaching the same conclusion.