A week of pain and ignominy for American International Group Inc. took another hard turn on Thursday when it got booted from the Dow Jones industrial average, ending the shortest term any company has spent in the blue-chip index since the Great Depression.
Taking its place come Monday's opening bell is Kraft Foods Inc., the first pure food company in the index in 23 years. Emblematic of the current market turmoil, the maker of such comfort foods as Oreo cookies and Kraft Cheese was apparently seen as a better fit for the world's most-watched stock index than another risky financial company.
AIG, which required an $85 billion government bailout to avert bankruptcy earlier this week, was added to the Dow in April 2004 and was touted at the time as representative of the growing importance of financial services to the U.S. economy.
In announcing its removal from the 30-company index on Thursday, Dow Jones Indexes, the index provider, said the change was forced by AIG's "effective nationalization" and its very low stock price. It said it was not replacing it with another financial stock because of the sector's extremely unsettled conditions.
The financial services landscape has been experiencing its biggest shakeup since the Great Depression. Apart from AIG's bail out, the week has witnessed the bankruptcy of storied investment bank Lehman Brothers and shot-gun wedding between broker Merrill Lynch and Bank of America.
"It makes sense that they lowered their financial exposure," said Frank Ingarra, co-portfolio manager at Hennessy Funds. Two of the funds Ingarra manages invest solely in Dow stocks.
"Apart from being a leader in the food industry, Kraft is a great defensive stock too. When times are tough then these are the stocks that are going to hold up well — when people can't afford to go for dinner anymore they're more likely to eat Macaroni and Cheese at home."
Changes in the 112-year-old Dow are fairly rare, and often reflect changes in the makeup of the economy. In November 1999, for example the Dow added two technology stocks — Microsoft, Intel — and a home improvement retailer, Home Depot.
AIG joined in April 2004 at the same time that International Paper and Eastman Kodak were booted out. Its four-year tenure on the blue-chip index is the shortest since the 1930s, according to data from Dow Jones Indexes.
Dow Jones Indexes said it was adding Kraft as the Dow had no representation in food products. The last stand-alone food company in the index was General Foods, which was removed in 1985.
Kraft's spokesman Michael Mitchell said the company was "thrilled that Kraft will be joining the many iconic companies that make up the Dow Jones Industrial Average. Joining the stocks of the Dow Jones index is a wonderful affirmation of our leadership in the food sector."
The changes won't cause any disruption in the level of the index, Dow Jones Indexes said.
The last component change in the Dow occurred on February 19, 2008, when tobacco company Altria Group and Honeywell were replaced by Chevron and Bank of America.