The potential for changes in the blue-chip Dow Jones industrial average remains high, according to the head of the index's oversight committee, the same day the head of General Motors said bankruptcy had become more likely.
Both GM and Citigroup have needed large infusions of capital from the government to stay alive, and while the automaker edges closer to bankruptcy, Citigroup's capital cushion still remains tenuous.
“The chain of events involving GM and Citi seem to be marching in a certain direction,” said John Prestbo, executive director of Dow Jones Indexes and the chairman of the DJI oversight committee.
Monday, Fritz Henderson, the chief executive officer of GM, said it was “more probable” the automaker would need to file for bankruptcy in order to restructure, though there was still a chance it could be avoided.
GM might not be the Dow's only casualty, however, as Citigroup may also be on the chopping block because the financial institution has seen its market capitalization shaved to a fraction of its peak and faces the chance that the government may increase its stake in the company.
Both companies could face disqualification, said Prestbo, who had no comment on possible replacements for GM or Citi in the average. He did say the removal of global insurer American International Group Inc from the Dow last September left the financial sector underrepresented. AIG was replaced with Kraft foods Inc, the maker of Oreo cookies.
“The banks we have in (the index) are all pretty diversified but AIG was an insurance company as its primary business and that doesn't exist in the Dow at present,” Prestbo said.
Prestbo said that dropping GM and Citi from the 30-stock average the Dow is not a done deal. The events for disqualification “have not happened yet, and may not happen,” he said. (Reuters)