Seven years after being spun off by Citigroup Inc., Travelers Cos. is supplanting its former parent as a member of the Dow Jones industrial average.
Dow Jones & Co. also said Monday it would add computer networking gear maker Cisco Systems Inc. to the industrials, replacing General Motors Corp., as GM entered bankruptcy protection.
Travelers' selection helps maintain the representation of financial companies in the Dow. The property and casualty insurer has suffered less than many other financial firms during the credit crisis and recession.
New York-based Citigroup is the second financial company to be dropped from the Dow after suffering huge losses during the credit crisis and recession. Dow removed American International Group Inc. in September after the insurer received a multibillion dollar bailout that gave the government an 80 percent stake in the company.
Citigroup was expected to be removed from the index as its share price tumbled nearly 87 percent since the beginning of 2008. Shares of St. Paul, Minnesota-based Travelers, on the other hand, are only down nearly 22 percent.
As of Friday, Citigroup accounted for less than 1 percent of the value of the index, which includes 30 stocks that make up the best-known barometer of Wall Street. As a higher-priced stock, Travelers will have more weight, and therefore will account for a larger portion of the Dow.
Shares of Travelers gained $1.43, or 3.5 percent, to $42.09 in afternoon trading Monday, while Citigroup lost 3 cents to $3.69.
The changes take effect June 8.
Citigroup's removal ends 12 years in the index for the New York-based bank, known as Citicorp when it joined in March 1997. Citigroup was created in 1998 when Sanford Weill merged his Travelers Group with Citicorp, creating a financial supermarket providing everything from checking accounts to hurricane insurance. Travelers was then spun off as a separate company in 2002.
"It's always sort of interesting, and ironic, when a former subsidiary of a company that got spun off eclipses the parent," said Paul Newsome, an analyst with Sandler, O'Neill & Partners.
Wall Street Journal Managing Editor Robert Thomson expressed reluctance in a statement Monday to remove Citigroup, although "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."
The government's stress tests of the 19 biggest U.S. banks earlier this month showed 10 of them had to raise a total of $75 billion in new capital to withstand possible future losses. Of those, Citigroup needed $5.5 billion.
Thomson added said that after the removal of AIG last year and the addition of Kraft Foods, the financial industry was underrepresented on the Dow. The selection of Travelers corrects that deficiency, he said.
John A. Prestbo, editor and executive director of Dow Jones Indexes, said the company, when looking for Citigroup's replacement, turned to an insurer because "we wanted to get that element back into the mix."
Like Travelers, AIG sold property and casualty insurance.
"I think it's certainly appropriate to add Travelers," Newsome said. "They are a big company and well capitalized ... the things you would want in a blue chip kind of name."