Don’t be surprised when you fail to see Citigroup Inc. and even General Motors, for that matter, in the Dow Jones Industrial anymore. The Index has officially replaced Citigroup Inc. with Travelers last June 8, 2009. Since the latter part of last year, the shares of the bank have taken a severe beating. From mid-January onwards, Citigroup’s shares were trading below the $5 level. It had even dipped to as low as 97cents after huge losses were announced on March 5 and the government had to step in.
Now, the public owns around 34 percent of the bank; this development does not bode well with investors. No one would have thought that such a catastrophe would happen to, what was previously, the world’s largest bank. Citigroup’s removal from the Dow Jones Industrial Average signals the end of their prestige and 12-year status on the Index.
But why did it take so long to remove Citigroup if it had been performing so poorly for months? The Dow Jones Editor-in-Chief Robert Thomson said that the Index was hesitant to send shocks through the already turbulent market especially “at the height of the financial frenzy”.He further added that they hoped the bank can once again rejoin the Index once it stabilizes.
As part of its efforts to assure investors, depositors, and the general public, Citigroup announced that this development will not affect the bank’s operations in any way. The bank’s management will do what it takes to get back to profitability. A noteworthy initiative is the bank’s plan to start a brokerage partnership with Morgan Stanley. Citigroup will give up its Smith Barney unit to get a 49 percent share as well as $2.75 billion.
The replacement of Citigroup with Travelers is somewhat a bitter irony for the bank. When the bank was listed to the Dow Jones Industrial on March 1997 as Citicorp, it merged with Travelers in 1998. The company was renamed to Citigroup Inc. Then, in 2002, the management decided to spin off their Travelers unit and concentrate on banking operations.
Only two other banks are left in the Dow with the removal of Citigroup Inc. These include Bank of America (BAC) and JP Morgan Chase & Co. (JPM).