Out go GM and Citigroup and in come Cisco and Travelers, the latter to ensure a full weighting of financials in the famous index, which remember is weighted by share price not market capitalisation.
The irony here, of course, is that Citigroup was formed by the merger of Citicorp and Travelers in 1998. The insurance company was subsequently spun out of Citi in 2002.
Here’s Robert Thomson, Dow Jones editor in chief, on the changes.
Firstly, on GM:
“The parlous state of GM has left us with no choice but to remove it from The Dow. A bankruptcy filing immediately disqualifies a stock regardless of a company’s history or its role as a cultural icon.”
And on Citi:
“We were reluctant to remove Citigroup at the height of the financial frenzy, but 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.”
On Travelers:
“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.”
And on Cisco:
“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.”
And finally, John A. Prestbo, editor and executive director of Dow Jones Indexes, attempts to explain why GM and Citi were allowed to remain in the DJIA in spite of their lowly share prices:
In our judgement, the stocks until now helped the Dow Jones Industrial Average tell the daily story of the stock market. The extraordinary conditions of the severe bear market and recession kept these stocks relevant and representative for a longer period than might have been the case in more normal times.
And some early price reaction from Wall Street courtesy of Reuters:
RTRS TRAVELERS CO OPENS UP 3 PCT TO $41.90 14:37 01Jun09
RTRS-CISCO SYSTEMS SHARES RISE 3.1 TO $19.07 AT THE OPEN
RTRS-CITIGROUP OPENS LITTLE CHANGED AFTER REMOVED FROM THE DOW