Feb. 12 (Bloomberg) -- Bank of America Corp.'s and Chevron Corp.'s shareholders may come to regret the day that their companies move into the Dow Jones Industrial Average.

All three companies added to the Dow industrials in April 2004, the last time that Dow Jones & Co. changed its component stocks, have lagged behind the average since then. Only Verizon Communications Inc., the second-largest U.S. telephone company, has risen since becoming one of the benchmark's 30 members.

American International Group Inc., the world's largest insurer by assets, and Pfizer Inc., the biggest drugmaker by sales, have lost more than a third of their market value.

There isn't a gain to be found among the stocks that joined in the previous revision, completed in November 1999. Home Depot Inc., Intel Corp., Microsoft Corp. and AT&T Inc., then known as SBC Communications Inc., have each dropped at least 30 percent.

Bank of America, the largest U.S. bank by assets, and Chevron, the country's second-biggest oil company, were named yesterday to the Dow industrials. Next week they will replace Altria Group Inc., the tobacco company that will spin off its international unit in March, and Honeywell International Inc., the average's smallest industrial company by sales and profit.

Both replacements are among the country's three largest companies by market value that aren't already in the average. Berkshire Hathaway Inc., billionaire Warren Buffett's company, is the other. Berkshire is also excluded from other benchmarks because trading in its shares is relatively low.

Takeover Effect

Bank of America, based in Charlotte, North Carolina, reached the pinnacle largely through mergers and acquisitions. Since 1992, the company has announced $240.4 billion of deals, according to data compiled by Bloomberg. Its market value at yesterday's close was $187 billion.

Chevron's value has almost tripled to $169.8 billion since the San Ramon, California-based company was dropped from the Dow industrials in the November 1999 overhaul. The surge has stemmed from soaring energy prices as well as takeovers, especially the $45.8 billion purchase of Texaco Inc. in October 2001.

The company's share price has risen 76 percent since the revision -- almost exactly as much as Boeing Co., the average's fourth-best performer during the period, Bloomberg's data shows. Bank of America has gained 31 percent, beating all but eight of the Dow's members.

The stocks added to the Dow industrials in 1999, and also in 2004, were high fliers before being picked. Their subsequent performance doesn't bode well for Bank of America or Chevron.

Distant Records

SBC, which acquired AT&T Corp. and took its name in 2005, has yet to exceed the record high reached in January 1999. Home Depot, the world's largest home-improvement retailer; Intel, the largest semiconductor maker, and Microsoft, the biggest maker of software, peaked within nine months of joining the average. AIG, Pfizer and Verizon also set all-time highs in 1999 and 2000.

Bank of America reached its highest price in November 2006, and Chevron followed suit last September. Shareholders may have to wait a while for new highs, if the track record of their predecessors is any guide.

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AIG's disclosure yesterday that the value of its credit- default swaps was overstated points toward another potential black hole for financial companies, already suffering from multibillion-dollar losses on subprime-related holdings.

Credit-default swaps, or contracts that provide protection against corporate debt defaults, are the fastest-growing segment of the derivatives business. The value of outstanding swaps rose 75 percent during the 12 months ended in June to $45.5 trillion, according to the International Swaps & Derivatives Association.

Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co., estimates that the swaps may generate $250 billion in losses this year. These contracts ``are perhaps the most egregious offenders'' within a ``shadow banking system'' that dodges reserve requirements, he wrote last month.

AIG said auditors found ``material weakness'' in its swaps accounting. After the subprime mess, it's hard to view the New York-based company as an isolated case -- and harder still to believe there won't be more hits as 2007 results are audited.

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Reliance Energy Ltd., India's second-biggest utility by market value, seems to have almost no value to investors aside from its stake in Reliance Power Ltd., a power-plant unit whose shares started trading yesterday after a record-setting initial public offering.

Reliance Energy holds 1 billion shares of Reliance Power, or a 45 percent stake, according to the prospectus for the $3 billion IPO. The holding was valued at 372.5 billion rupees ($9.4 billion) even after the Mumbai-based unit tumbled 17 percent in its debut on the Bombay Stock Exchange.

The market value of Reliance Energy at day's end was only 0.4 percent higher at 374.2 billion rupees. The company, also based in Mumbai, builds highways, bridges, railroads and real- estate developments in addition to power plants.

Reliance Energy dropped 19 percent yesterday, the worst performance among six publicly traded companies controlled by Anil Ambani, India's second-richest man. Only Ambani's brother Mukesh is wealthier, according to Forbes magazine.

(David Wilson is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Wilson in New York at dwilson@bloomberg.net

Last Updated: February 12, 2008 00:13 EST