Oswald's exit and its disastrous implications for what comes next

It is a black sort of Monday if you work at UBS. Needless to say, Oswald Gruebel has

gone. According to the

Financial Times, his exit was ultimately precipitated by a disagreement over strategy: Gruebel wanted UBS to remain a universal bank, comprising asset management, wealth management and investment banking; the board didn't.

So, what now?

For the moment, UBS investment bankers still have the reassuring presence of Carsten Kengeter, the ex-Goldman Sachs Partner brought in as head of the fixed income currencies and commodities (FICC) division in 2008 who now heads the investment bank. However, Kengeter's close affiliation with Gruebel and the seemingly-doomed FICC business make his future look uncertain - even though UBS chairman Kasper Villager has explicitly stated that he sees no reason to doubt his future.

Even if Carsten stays beyond 12 months, which seems unlikely, UBS is a different place this morning. Here is how.

1) UBS will never be a first tier bank, it will probably no longer be a second tier bank

UBS now has no intention of having an investment bank that is anything more than an adjunct to its wealth management business.

2) FICC is going to get slaughtered

UBS's board has requested that planned changes to the investment bank are accelerated. The Financial Times claims to have spoken to 'executives' who say "large chunks" of the FICC business "will be shuttered." Morgan Stanley analyst Huw van Steenis has points out the inevitability of this: without restructuring over half of UBS's capital base is tied up in fixed income, but investors want to buy a Swiss asset and wealth manager with a small profitable brokerage attached.

The implication: all the people hired into FICC over the past few years (420+) are now at risk; probably more.

By comparison, UBS's poor performing equity capital markets bankers, its M&A bankers, its equities salespeople and traders, and - to a lesser extent - its DCM bankers, look safe. Anything that can be melded with the needs of the wealth management business has a future. Private clients like to trade equities; they also like access to stocks that are being IPO-d. It helps, too, that the new chief executive, Sergio Ermotti, is a big equities man.

3) Everyone who can leave, will

UBS has already had issues with staff defections, particularly in the US where more than 80 senior M&A bankers left between 2006 and early 2011. Those problems are about to get a lot worse.

In the current circumstances, the Financial Times points out that the most mobile staff are likely to be in Asia. In June it emerged that UBS had hired 1,000 staff in Greater China. Will they really stay on?

4) It will be a long, slow death full of rasping breaths and fevered groans

The carnage at UBS will not be instant "Revamping the bank will probably take the next two or three years until it's all completed," Villiger reportedly told Sonntag. Promisingly, given the high turnover of UBS CEOs, he also said Ermotti is a strong candidate to remain as CEO on the grounds that he is both experienced and Swiss.

5) There are going to be some very difficult bonus decisions this year

In the first quarter of 2011, UBS made 435 net new hires. Headhunters say many of these were into the FICC business and that many received guarantees. If so, the coming bonus round will be even more challenging than thought. If those FICC people must be paid no matter what - but the FICC business is being reduced, how will UBS pay the equities and advisory bankers it wants to stay?

6) The real hope is that Deutsche is hiring

UBS bankers need to hope that Deutsche is hiring. Rajeev Misra, head of FICC, and Yassine Bouhara, head of equities, both came from Deutsche and have hired generously from there. Those new hires may now want to retrace their steps.