Bankrupt General Motors will be replaced by networking giant Cisco Systems in the Dow Jones industrials index and ailing bank Citigroup will make way for insurance giant Travelers Companies, Dow Jones said Monday.
The changes to the index, a key stock barometer containing a coveted list of 30 top US companies, are effective June 8.
The announcement came just after GM, filed for bankruptcy protection in a New York court, culminating the collapse of the automaker that once symbolized American global industrial might.
“The parlous state of GM has left us with no choice but to remove it from the Dow,” said Robert Thomson, managing editor of The Wall Street Journal and editor-in-chief for all of Dow Jones.
“A bankruptcy filing immediately disqualifies a stock regardless of a company’s history or its role as a cultural icon,” he said.
On Citigroup, which was rescued by the government from the brink of bankruptcy, Thomson said Dow Jones was initially reluctant to remove the ailing banking giant at the height of financial turmoil.
But he added that “it is clear that the bank is in the midst of a substantial restructuring which will see the government with a large and ongoing stake.
“We genuinely hope that once the bank has refashioned itself that we will again be able to consider it for inclusion — Citigroup is a renowned institution, not only in this country, but around the world,” he said.
The selection of Travelers, a property and casualty insurance company, is intended to restore the financials industry to full representation in the Dow index, Thomson said.
Insurance giant AIG was ejected from the index last year after ran into financial troubles and became the largest single recipient of federal bailout money.
“When we removed American International Group, Inc. last fall, we substituted Kraft Foods, Inc. rather than another financial stock because the financials industry was then in great upheaval. That choice left financials underrepresented in The Dow, a deficiency we are now correcting,” Thomson said.
He said that Cisco was a fitting addition “because its communications and computer-networking products are vital to an economy and culture still adapting to the Information Age — just as automobiles were essential to America in the 20th century.”
GM ends an 83-year run as a Dow component while Citigroup joined the index in March 1997, as Citicorp.
Ironically, Travelers merged with Citicorp to form Citigroup in 1998, creating what was then termed a “financial supermarket.” Citigroup spun off Travelers in 2002.
