Dow kicks out GM and Citigroup
The Travelers Companies replaces the financial services company, while Cisco Systems fills in for the automaker.
NEW YORK (CNNMoney.com) -- Two companies that have received billions of dollars in aid from the U.S. government have been kicked out of the Dow Jones industrial average (INDU).
According to a statement released Monday, General Motors, which filed for bankruptcy on Monday, will be replaced by Cisco Systems (CSCO, Fortune 500); Citigroup (C, Fortune 500) will be replaced by The Travelers Companies (TRV, Fortune 500).
The changes in the Dow will go into effect on on June 8, according to Dow Jones.
GM shares opened for trading on the New York Stock Exchange after a brief delay Monday morning, but the NYSE says the shares will be delisted before trading begins Tuesday. GM has the right to appeal that decision.
General Motors became ineligible for inclusion in the benchmark indicator when it filed for Chapter 11 bankruptcy protection Monday.
"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, in a written statement. "A bankruptcy filing immediately disqualifies a stock regardless of a company's history or its role as a cultural icon."
The company taking the place for the bankrupt automaker is tech bellwether Cisco Systems, which is based in San Jose, Calif., and makes networking equipment.
"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," said Thomson.
Thomson left the door open for the financial giant to be put back on the Dow when it stabilizes. "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."
GM ends an 83-year run as a component of the Dow. The automaker was added to the index twice, first for 18 months in 1915 and then again on Aug. 31, 1925, according to the release from Dow Jones.
The only current company with a longer history as a component of the index is General Electric (GE, Fortune 500). GE was initially included in the Dow in 1896 but was removed after a few years of fitful stops and starts. In 1907 it was relisted.
GM's absence from the Dow marks the auto industry's waning power and influence. And its replacement -- a technology heavyweight -- is representative of larger industrial evolutions. Cisco's "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," Thompson said.
Citigroup joined the Dow in 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. At the time of the 1998 merger, Travelers was a member of the Dow 30.
Dow Jones decided to add another financial company to the index in order to re-calibrate the index. When the Dow let go of American International Group in September, it replaced the insurance company with Kraft Foods (KFT, Fortune 500) because the financial sector was in so much turmoil.
"The selection of Travelers, a property and casualty insurance company, is intended to restore the financials industry to full representation in The Dow," said Thomson.
Dow Jones said the changes won't cause any disruption in the level of the index. A divisor is used to calculate The Dow from its components' prices, which prevents any distortion in the Dow.
"In our judgment, the stocks until now helped the Dow Jones industrial average tell the daily story of the stock market," said John A. Prestbo, editor and executive director of Dow Jones Indexes, in the written statement. "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."
Later Monday, rating agency Standard and Poor's released a statement saying GM will be removed from its S&P 500 index after the close of trading on Tuesday.
Its replacement is DeVry (DV), a post-secondary education provider based in Oakbrook Terrace, Ill.