Dow Jones swaps Travelers, Cisco for Citigroup, GM

ByABC News
June 1, 2009, 3:36 PM

NEW YORK -- The definition of a blue-chip stock apparently doesn't include terms such as bankruptcy protection or government-owned.

Indeed, the keepers of the Dow Jones industrial average, a stock market icon known for its stable of 30 stocks with blue-chip pedigrees, have decided that a pair of once-proud companies humbled by the worst financial crisis since the 1930s are no longer fit to represent its global brand.

Both have seen their bottom lines and reputations battered by the financial fallout of the credit crisis.

The weighting of financials in the Dow had dipped to 7.19% before the changes but will rise to 10.13% with the addition of Travelers, says Howard Silverblatt, analyst at Standard & Poor's.

The changes, the first for the Dow since September 2008, when insurer AIG, also a victim of the financial crisis, was replaced by Kraft Foods, are effective with the opening of trading on Monday, June 8, and won't affect the Dow's level.

In a statement, Robert Thomson, managing editor of The Wall Street Journal, which picks Dow components, said they had no choice but to remove GM with its bankruptcy filing, and that they reluctantly removed Citigroup because of the bank's ongoing restructuring and newfound government role in running it.

The Dow is price-weighted, so stocks with the highest prices have a bigger effect on its moves. Richard Moroney, editor of the Dow Theory Forecasts newsletter, says expelling Citigroup and GM, stocks that had lost most of their value, will in essence replace two stocks that had very little impact on the Dow with two that could have a larger effect.