Induction Of Leo C. O'Neill

Inducted November, 2003
By Richard S. Wilson

It is a distinct pleasure and honor to be here this evening to present to Leo C. O’Neill our society’s highest honor, induction into the Hall of Fame. The Hall of Fame was established in 1995 and tonight’s inductees are the 20th and 21st members. They are being recognized for a lifetime of achievement in the advancement of the analysis of fixed income securities.

Leo started out as an underwriter for Insurance Company of North America in Philadelphia but after a couple of years came to New York in 1968 and joined Standard & Poor’s as an equity analyst. He soon saw the light and went over to the corporate bond side of the business. He made steady progress rising through the ranks, becoming President in 1999. For many veterans of Wall Street, this is quite a remarkable accomplishment, being at ONE firm for 35 years, from youth through seasoned citizenship. A number of years ago I was having lunch at Harry’s with five other Wall Streeters. The six of us represented more than 35 firms and we still had years to go in the business!

I first met Leo back in 1971 when a couple of us from Drexel Firestone went up to S&P’s Hudson Street offices to talk about happenings in the corporate bond market. This was at the beginning of S&P’s widening the horizons of its analysts. They were open to these conversations and I think it was beneficial to both parties.

In 1975 Leo was promoted to Vice President of Corporate Finance and Chairman of the Corporate Bond Rating Board. In 1978 he became General Manager of Corporate Finance, in 1981 Group Vice President of Debt Rating Services which included corporate, municipal and international finance, and in 1984 Executive Managing Director of Debt Rating Services. Finally, in 1999 he became President of the whole kit and caboodle —- stocks, bonds, indices, publications, exchange-traded funds and much more — with over 5,000 employees. In 2002, S&P Financial Services contributed one-third of McGraw Hill’s $4.8 billion of operating revenue and it had an operating profit of $570 million, more than half of McGraw Hill’s $1.02 billion operating profit.

Now let’s look at some of Leo’s accomplishments over the years that have worked to the benefit of the fixed income community. A believer in transparent and open financial markets, under his leadership S&P established a bond seminar program in the late 1970s. They also took an important step of educating the market with the publication of its first book on rating criteria, high pointing their consistent ratings methodology. This was an invaluable tool for market participants and furthered the growth of S&P’s fine reputation. This was followed by scrapping the old Bond Outlook and the introduction of a much better and meatier publication, CreditWeek. Other rating criteria publications followed and were enthusiastically received. When you explain your rating methodology for older conventional debt instruments but especially for new derivative and structured securities, you give legitimacy to the ratings thus paving the way for the growth of these markets.

CreditWeek introduced the potential direction of ratings and this simple addition to ratings had an impact on sell-side fixed income research activities. Up to that time Street analysts tried to second guess the agencies on rating upgrades and downgrades. As a friend of mine recalls, Street analysts became less of a credit analyst and more of a bond analyst, spending more time with sales and trading and less time in the library. The sell-sider became more action or transaction oriented. This move to a profit center accelerated employment opportunities and improved compensation, sometimes at the expense of the agencies.

Recognizing the opportunities for global expansion where private debt markets were developing, Leo led the charge, opening a London office in 1984 and a Tokyo office in 1986. He now has offices in 19 countries under his wing. Over the last few years corporate governance has become almost a daily feature of our media reports. In 1998 S&P was the first to focus on corporate governance metrics.

Starting with a small group of analysts in a fairly small company in a small industry, not known by many people, and accused of being secretive and slow to react to change, the firm Leo now heads is a vastly different one than in the days of yesteryear. It is innovative and open and it has gained the respect of market participants and corporate and government leaders around the world.

Leo is an industry spokesman and a frequent speaker before academic, professional, regulatory and government groups, both here and abroad. He appeared on the cover of January’s CFO Magazine and has written a number of articles, most recently “Why Ratings Agencies Don’t Need Oversight.” for Career Journal.com. He serves on the board of a number of S&P subsidiaries; and is a member of The McGraw-Hill Companies Pension and Investment Committee.

Leo graduated from Hobart College in the Class of 1962 and in 1995 was awarded its alumni association’s Medal of Excellence for bringing “honor and distinction to his alma mater.”. He is treasurer and board member of Scenic Husdon, an organization devoted to preserving the beauty of the historic Hudson River Valley. He is a trustee of the Battery Conservancy as well as a member of the Executive Advisory Panel of the Open Compliance and Ethics Group Project. An avid golfer, Leo is a member of the Dutchess Golf and Country Club in Poughkeepsie and boasts of a handicap of around 13 or so (I guess depending on who he is playing against).

Probably no firm has contributed more to our society than S&P under Leo’s leadership. It was an early supporter allowing its members to join our ranks and its analysts at my last glance have 23 FIASI memberships. It has supported our major events over the years and is a corporate sustaining member. Therefore, on behalf of the members and board of the Fixed Income Analysts Society, I am proud to introduce to you FIASI’s friend, Leo C. O’Neill, and to present to him this engraved Tiffany crystal.

Acceptance Speech of Leo O'Neill

Thank you, Dick for that terrific introduction.

Well, first and foremost I want to express my appreciation to the Fixed Income Analysts Society for this wonderful honor. To be included among the outstanding individuals that have been honored previously by you is quite incredible and totally unexpected. When Diane told me about it, I was somewhat stunned since I really have not been a practicing analyst for many years. (By the way, some people would say that I never really progressed beyond “practicing” even then.) But I think I know why I am being honored here tonight and it probably has less to do with me than it has to do with the organization that I have been so fortunate to be connected with - Standard & Poor’s. I’ll come back to that in a minute if I may. I would also like to recognize my co-honoree this evening, Jack Malvey of Lehman Bros. You will hear shortly of Jack’s outstanding contributions over the years, but suffice to say, he represents the “best in class” of the fixed income analyst community. Congratulations Jack. I also need to thank my colleagues at McGraw-Hill, our parent company, who have been unfailing in their support for our rating activities over the years. McGraw-Hill has been and continues to be the perfect environment for both editorial and analytical objectivity and integrity.

And of course my family, represented here by my wife Kip, and my son, Matt.

But most importantly, I want to thank my colleagues at Standard & Poor’s over the years. They really deserve this award. Too many to name - literally thousands if you think about it - but there are a few here I should mention, even at the risk of overlooking someone. Thank you, Cliff Griep, Ed Emmer, Vickie Tillman, Rik Kranenburg, Vlad Stadnyk, Joanne Rose, Rita Bolger and so many others. Parry Young, Mark Bachmann, Bill Cox, Petrina Dawson, and on and on. All of you. Thank you.

resentations such as these by definition focus on the past but I think perhaps this one is different. If I am correct that this is more about S&P than it is about Leo O’Neill, then this honor that I represent tonight is more a commitment to the future than a recognition of the past. It is an ongoing honor that must be earned every day by Standard & Poor’s in our markets. That’s the way I look at it. Leo goes but S&P remains. The Fixed Income Analysts Society and its members, which represent a critical component of the breadth and liquidity of our markets, with this recognition have a right to expect -- and S&P has an obligation to deliver -- rating judgments with a total commitment to accuracy and timeliness supported by the highest degree of integrity, objectivity, and transparency. Tonight, I think you are saying we are recognizing Standard & Poor’s for this, but I am also hearing - and I hope our people are hearing – S&P, you cannot afford to compromise in any way your commitment to those objectives. I can assure you in the strongest terms that we will not.

But I think there are some things you should not expect and I think for the knowledgeable practitioners in this room you do not. You should not expect ratings to always fit with the market consensus - whatever that is - or not be controversial from time to time. Surely, it is unsettling, it is uncomfortable, but unfortunately that is often a by-product of what we do. You should not expect all rating agencies to agree - heaven forbid, these are opinions after all arrived at by humans - more or less - these days. And you should not, as I am sure all of you would agree, expect ratings to perform any other service than to identify and elaborate on risk. They are not marketing tools or political pronouncements, although they are often used by others this way - at least as long as things are going well. And finally, you should not expect rating agencies to do what regulators, legal counsel, auditors, and other insiders are expected to do and sadly have not done so notably in the recent past. But, enough, I preach to the choir – a quite knowledgeable choir, I might add.

A final observation. I find it ironic but noteworthy that the year FIASI was launched - in Harry’s I believe – 1975 - was the same year that the SEC bestowed its so-called recognition on rating agencies. Now if one were to look at the so-called rating agency industry today, with no other knowledge, one would conclude that given the growth and impact of rating agencies, the original handful of FIASI members would still be at Harry’s bar - if it was still open. But no. FIASI has also grown in size, prestige, and impact both here and outside the United States. One might ask, how can this be? What has happened is that our debt markets have grown in depth, liquidity, complexity, and sophistication driven in large part by a research community where rating agencies play a vital role, certainly, but where diversity of objective opinions, and independent analytical approaches are the ultimate drivers of market health and growth. Rating agencies and the fixed income community have this unusual relationship where you are our audience, our fellow players, but also our critics. You may or may not agree with what we do. And that’s allright. It’s the way free markets should work and do work most of the time in this country. So it is critical that if the rating agency industry is to remain responsive and credible, our ratings must continue to be tested everyday in the marketplace by a knowledgeable and questioning research community as represented by the Fixed Income Analysts Society. So when your audience, your fellow players, and your critics recognize your achievements, it is a tremendous honor. We will work hard to continue to deserve it.

Thank you.