UBS goes to the mattresses

Benjamin Lorello likes to leave firms with a bang. The healthcare investment banker made headlines 10 years ago, when he ditched longtime home Salomon Smith Barney for UBS and a three-year contract reportedly worth $70 million. He's making waves again, this time for blowing out of UBS with 35 members of his team for Jefferies & Co. And his former employer is crying foul.

The Swiss bank filed a claim with the Financial Industry Regulatory Authority Dispute Resolution panel on June 22, seeking to force Lorello and his lieutenant, Sage Kelly, to take their gardening leave. Though UBS can do little to stop Lorello from actually leaving the bank, the bank's filing with Finra provides an interesting look at what happens inside a struggling institution when it can't afford to pay fat bonuses to its top performers. The filing also offers a glimpse of how a dealmaker like Lorello -- a super ambitious banker who likes to quote fictional mob boss Vito Corleone and counted HealthSouth Corp.'s Richard Scrushy among his clients -- can catapult himself into a new job, even during a down market.

According to the filing, Lorello and Kelly "became disillusioned with their senior management" at UBS over the past year, a feeling that "peaked" in January 2009, when the bank announced it wouldn't be paying big bonuses. The pair immediately swung into action, actively exploring other opportunities for themselves and their team, with Lorello promising his underlings, "I will take care of you in the end. Don't worry." Lorello then embarked on what he called "an A, B, C strategy" for himself and his group, looking to relocate the unit to either: (a) a bulge-bracket firm; (b) an integrated midcap firm or boutique; or (c) his own investment bank.

Lorello and Kelly, according to the filing, talked to Deutsche Bank AG and Barclays plc but by mid-March had "zeroed in on Jefferies as the opportunity that they were going to try to consummate." By mid-March, they had met with Jefferies chairman Brian Friedman and co-head of investment banking Christopher Kanoff, but by April, the talks had stalled; Lorello and Kelly wanted "complete control" over the healthcare group and over their own careers at Jefferies. As UBS put it, "Lorello's concerns included the fact that Jefferies could bring in someone new over him as Investment Banking Head who could then determine his (and Kelly's) fate and that of the Healthcare Group."

In UBS' telling, Lorello and Kelly remained determined to leave for greener pastures. But they accepted pay raises from the Swiss bank on May 18 and agreed to give UBS 60 days' notice before ending their employment there -- a term the bank is now seeking to enforce in its complaint before Finra. Meanwhile, Jefferies caved to Lorello's demands and "extended to Lorello the security he had sought." Lorello would become global head of investment banking at Jefferies, with Kelly as his direct report and the head of healthcare banking.

In return, Lorello and Kelly would bring to Jefferies a "critical mass" of UBS healthcare bankers, and Lorello would also recruit to Jefferies "all the other 'good people' at UBS." As UBS sees it, Lorello's targeting of its employees may be based partly on "personal revenge." In late 2006 and early 2007, UBS says Lorello believed that the three heads of the investment bank were looking to fire him. Though he managed to keep his job, Lorello "vowed to get back at the individuals who had jeopardized his position of authority at UBS."

Lorello and Kelly resigned from UBS and joined Jefferies on June 17 -- the first day of its annual healthcare conference. A further 34 members of the healthcare team have resigned since, leaving UBS with just three managing directors and four executive directors in its healthcare group. UBS stands little chance at relief, though Judge Eileen Rakower, a New York state lower court judge, granted UBS a temporary restraining order on June 26, pending an order from her or Finra. The bank used Ronald Green, Peter Altieri and Robert Goldstein of Epstein Becker & Green PC in New York for legal advice on its complaint.

The loss of Lorello is a huge one for UBS. Since 2005, his group has closed $567 billion in transactions and booked $1 billion in revenue for the Swiss bank. Now he's looking to do the same for a new employer, presumably in return for a very big bonus.