Citigroup Inc. will be dumped from the Dow Jones industrial average next week, to be replaced by Travelers Cos. Inc. — Citi's former insurance partner in a failed attempt at the financial supermarket concept.
Theodore Kovaleff, the bank and thrift analyst at Broad Street Securities in Plantation, Fla., said the choice was ironic given that Citi spun off Travelers in 2002, less than five years after the companies combined with great fanfare.
"This is sort of like the rejected child replacing the parent," Kovaleff said.
Dow Jones & Co. said Monday that it was removing Citi from the index — at least for now — because the government will soon own more than a third of the New York company's stock.
"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," Robert Thomson, Dow Jones editor-in-chief, said in a news release. "We genuinely hope that once the bank has refashioned itself that we will again be able to consider it for inclusion."
Citi, which was added to the Dow in 1997 when it was Citicorp, did not comment.
Dow said it chose Travelers, a property/casualty insurance company, to replace Citi "to restore the financial industry to full representation in the Dow."
The change in the Dow will go into effect June 8.
Dow Jones also announced that it was dropping General Motors Corp. from the index, because of its bankruptcy filing, an automatic disqualifier. Cisco Systems Inc., San Jose, will replace the Detroit automaker on the index.
John A. Prestbo, editor and executive director of Dow Jones Indexes, said in the company's news release that both Citi and GM were included in the Dow despite their low stock prices. On Monday, Citi's shares fell 3 cents, to $3.69, and GM was unchanged from Friday's closing price of 75 cents a share.
"In our judgment, the stocks until now helped the Dow Jones industrial average tell the daily story of the stock market," Prestbo said. "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."
Kovaleff said the Dow stands to be more volatile with the higher-priced stocks. On Monday, Travelers shares rose 3.1%, to $41.91. Cisco rose 5.4%, to $19.50, and the Dow rose 2.6%, to 8,721.44.
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