Jeremy Isaacs: Lehman was the wrong option


Peter Lee
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As part of Euromoney's 50th anniversary coverage, we profile some of the biggest names that we interviewed for our April capital markets focus.

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Jeremy Isaacs started as a blue-button at Smith New Court (later acquired by Merrill Lynch in 1995), working on the London Stock Exchange as a trainee trader at one of the biggest stock jobbers. He was in at the start of equity options in the early 1980s.

“No one had very detailed experience in trading options, and at a very young age I was better at it than most people, simply, I think, because I was quite numerate.” 
Also, he stayed sober.

These were the days of open outcry. 

“You had these quite fabulous characters,” Isaacs recalls. “They would periodically go on three-hour lunches and drink huge amounts. I would wait for them to come back from lunch and make a fortune off them. My bosses would call me in and ask me: ‘Jeremy did you really do that?’ And I would say: ‘Yes, of course.’ And my bosses would sometimes try and cancel my trades against their mates at Akroyd & Smithers, Pinchin Denny, Bisgood Bishop.”

Desire to learn

By the age of 20, Isaacs had 20 other traders and blue-buttons reporting to him, but felt he was too young to be their teacher. He wanted to learn.

So, he wrote to Fischer Black, the Harvard mathematics PhD and co-author of the Black-Scholes model, then at Goldman Sachs. 

“I introduced myself and told him I wanted to come and work for him; he invited me to New York. It was my first trip there and on my first day I had about 15 interviews at Goldman Sachs.” 

He recalls meeting Black for the first time. “There was this figure in a long narrow office with his back to me, staring at his screen and typing with one hand on a keyboard that he held to his shoulder like a violin. 

“‘So, young man,’ he said, ‘tell me what you know about traded options.’ 

“‘Not as much as you sir,’ I told him. He looked at me and said: ‘I think we’re going to get on.’ 

“And he was right. We did.”

Back in London, Isaacs helped build a big equity derivatives and index arbitrage business at Goldman Sachs. 

“I was a very aggressive trader and a big presence on the Liffe floor, with a fearsome reputation.” 

He made a lot of money.  

Lehman Brothers was forced into bankruptcy. The people responsible for that decision have never been called to account 
 - Jeremy Isaacs

“The European banks had quite brilliant individuals, but they were so disorganized. I could buy from a French bank in Paris and then sell to their branch in Frankfurt and make a profit.” 

But he also recognized his own limits. 

“As the market grew more sophisticated and the quant skills required became more challenging, I decided it was time to broaden my focus.”

Three colleagues from the ultra-high net-worth private banking team at Goldman, Noam Gottesman, Pierre Lagrange and Jonathan Green, had gone to Lehman Brothers to set up a unit called GLG. They asked Isaacs to join too.

“Three times I took the evening Concorde to New York, had dinner with Dick Fuld – who I liked very much and was super impressive – got the overnight flight back and was on the floor at Goldman the next morning with no one knowing I had been anywhere.” 

He joined Lehman in 1996, helped it through the Russia crisis in 1998 and became chief operating officer for Europe in 2000 and then chief executive of everything outside America. 

“We took a $2.5 billion annual revenue business and turned it into a $10 billion revenue business by hiring tremendous people who felt this was a place where they could come in, show some genuine flair and make a difference and where they weren’t just cogs in a machine.” 


In the glory days of low rates after the dot-com crash the sense of passion and belief was intoxicating. But as bigger banks used their balance sheets to get ahead, the race became one of leverage on leverage and Lehman was eventually caught with an excess of illiquid longs funded short when the music finally stopped in 2008.

Isaacs feels the firm could have been saved – with potential investments from Kuwait, Korea Development Bank and Warren Buffett slipping through its fingers – and that what happened was a misjudgement. 

“Of course, Lehman made mistakes,” he says. “Of course, the equity of the firm should have been wiped out and with it the investments of many of its employees. But it could have been saved and it would have cost maybe $30 billion to prop it up. To put an $800 billion balance sheet and $4 trillion notional of derivatives into run off was a monumental error. 

“It was like a plane crash where instead of letting it down in the desert, it was allowed to crash in a crowded city. Lehman Brothers was forced into bankruptcy. The people responsible for that decision have never been called to account. How much did that cost the world economy? Within days, the other firms were on the brink themselves. They had to be given what Lehman had asked for, being turned into banks and allowed access to the Fed window. Around the world governments had to bail out their banks at enormous cost.”