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Dow gets rid of GM, adds Cisco Systems

NEW YORK — After 84 years as one of the Dow Jones Industrial Average's 30 blue-chip stocks, General Motors Corp. was given the boot Monday by Dow Jones and the editors of the Wall Street Journal after the auto giant filed for bankruptcy.

Dow Jones Indexes said Cisco Systems will replace GM on the Dow, while Citigroup Inc. was also shed, to be replaced by the Travelers Cos. Inc.

The change will be effective June 8. A bankruptcy filing, like nationalization, is grounds for removal from the Dow, said John Prestbo, editor of Dow Jones Indexes. Insurance giant AIG, nationalized as part of a government rescue, was removed from the index in September.

"We stuck with them in the past when they had trouble and then came out of it," Prestbo said in an interview before the removal of GM, a U.S. corporate icon.

GM shares on Monday traded up 12 percent at 85 cents. The New York Stock Exchange said it would suspend trading in the stock before today's opening.

Citigroup's shares rose 0.3 percent to $3.73. Travelers' shares gained 4.1 percent to $42.34. And Cisco shares gained 4.8 percent to $19.38.

Standard & Poor's said GM wouldn't automatically face ejection from the S&P 500 index. Such a move would depend on whether the stock was allowed to continue trading and maintained sufficient liquidity.

But while the S&P 500 is used as a benchmark by investment professionals, it is the Dow average that has long been viewed as the symbol of corporate and investment success in the public eye.

GM's loss of its blue-chip status is therefore also symbolic of the seismic shifts experienced in the U.S. and the global economy in recent times.

GM was first added to the Dow in 1915, only to be removed a year later for reasons known only to Journal editors at the time, who didn't make public how they had reached their decision.

But when GM was reinstated in 1925, there was little doubt why. The auto industry was booming and a big driver of economic growth.

"With $3.5 billion in market value, GM was enormous back then," said Howard Silver­blatt, index analyst at Standard & Poor's. "What was good for GM was good for the country."

Times have changed, however, and although GM had survived the past three decades of ups and downs for the U.S. auto industry, calls for a change in the Dow's makeup had grown louder ahead of the bankruptcy filing.

"The Dow is supposed to represent the economy, yet there was zero Internet exposure in there," said Barry Ritholtz, chief executive and director of equity research at Fusion IQ, ahead of the announcement. Ritholtz had for some time been a strong advocate of adding Cisco's stock to the Dow.

Dow gets rid of GM, adds Cisco Systems 06/01/09 [Last modified: Tuesday, June 2, 2009 4:45pm]
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