June 2, 2009 in Business

Dow gets new look; GM, Citi booted

Tim Paradis Associated Press
 

GM and the Dow

GM was added to the Dow twice, first for about a year and a half in 1915 and then in August 1925. Only General Electric Co. has been a component longer. The conglomerate has been in the index since it began with 12 stocks in 1896.

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Dow industrial average’s

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NEW YORK — The Dow Jones industrial average is the latest Wall Street institution to be reshaped by the financial crisis.

The stock market’s best-known barometer is adding Cisco Systems Inc. and Travelers Cos. and dropping General Motors Corp. and Citigroup Inc. The changes were announced as GM entered bankruptcy protection, a move that was widely expected.

Cisco, which makes computer networking gear, is filling the role left by GM after 83 years as part of the Dow. Travelers, the property and casualty insurer and one-time division of Citicorp, will replace its former parent. The changes to the 30-stock index take effect June 8.

“Cisco makes the paving bricks for the information superhighway, and it’s affecting the culture in kind of the same way that automobiles affected the culture in the 20th century,” John A. Prestbo, editor and executive director of Dow Jones Indexes, told the Associated Press. “We thought it was a fitting replacement for General Motors.”

Prestbo said Dow Jones tapped Travelers for the index to add back a major insurer after dumping American International Group Inc. in September. AIG’s shares had tumbled and the federal government funneled billions to the company to keep it afloat during the financial crisis. Kraft Foods Inc. replaced AIG.

And the government has, through bailout money, become a major Citigroup shareholder and reduced its role as a publicly held company.

“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,” Wall Street Journal Managing Editor Robert Thomson said in a statement. He has the final say on changes to the index.

Cisco can replace GM also because the aim of the index is to reflect most major industries, except for utilities and transportation companies, which are accounted for by other indexes.

Dow will adjust the formula by which the index is calculated so the addition of Cisco and Travelers won’t affect the value of the average.

© Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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