Spitzer scandal stuns Wall Street

Mar.10, 2008 in Market Outlook

One question hanging is governor’s involvement in bond-insurer bailout

By Nick Godt, MarketWatch

Last Update: 5:51 PM ET Mar 10, 2008

NEW YORK (MarketWatch) — Many on Wall Street were stunned and some apparently
were pleased by a Monday report linking New York Gov. Eliot Spitzer to
prostitution, while stocks showed little immediate reaction.

“Lots of people on Wall Street didn’t like him because he went after certain
people — heads of firms, analysts and [former New York Stock Exchange chief
Richard] Grasso,” said Donald Selkin, head of equity at Joseph Stephens.

The CNBC cable channel reported cheers coming from the floor of the NYSE as
reports of the scandal first hit television screens in midafternoon trading.

Spitzer later issued a brief statement apologizing to the public and his family
after the New York Times reported he arranged to meet with a high-priced
prostitute in a Washington, D.C. hotel. The state’s chief executive did not
disclose whether he would stay in office. See full story.
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Stocks saw their losses accelerate in afternoon trades Monday, though the
market’s concerns seem to be stemming more from worries about recession,
continued problems at financial institutions and crude prices topping $108 a
barrel than to the Spitzer scandal. See Market Snapshot.
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“Was there any impact on trading? I don’t think so,” said Dan Hogan, head of
Nasdaq trading at KeyBanc Capital. “I think the market is weak and vulnerable and
this was more of a sideshow, helping traders to take their minds off of a
difficult market.”

The Dow Jones Industrial Average ($INDU) fell 153 points to 11,740, the S&P 500
Index ($SPX) lost 16 points to 1,267 and the Nasdaq Composite Index (COMP) fell
31 points to 2,181.

Bailout jeopardized?

Spitzer, as New York’s governor, was involved in efforts to shore up ailing bond
insurers Ambac Financial Group (ABK) and MBIA Inc. (MBI), whose failure would
likely fuel the ongoing credit crisis already hitting financial markets and the
economy.

Shares of Ambac, already under pressure before the Spitzer reports, fell 23%,
while MBIA lost 10%.

“He was supposed to work on the settlement of the ABK/MBI deal,” Selkin at Joseph
Stephens said of Spitzer. “This might slow things down, but it’s unsure whether,
if [Spitzer] resigns, then maybe a new person would either want to speed it along
or would have other priorities.”

Should he resign, Spitzer would be succeeded by Lt. Gov. David Paterson, a
Democrat; both have endorsed New York Sen. Hillary Clinton for president. Any
resulting political turmoil might fuel the uncertainty already rocking Wall
Street.

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