BAT warns of US black market

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BAT Industries, the British cigarette giant, yesterday claimed the US would develop a black market in tobacco for teenagers because of the collapse of a $367.5bn (pounds 220m) legal settlement with the industry.

Lord Cairns, chairman of BAT, said "politics got in the way of common sense" when the deal collapsed last month.

"The proposals suggested by the Senate combine huge taxes with a mammoth bureaucracy and would result in an inevitable black market which, perversely, would make cigarettes more accessible to teenagers," he said.

BAT has warned of bankruptcy for the whole US tobacco industry if the Senate goes ahead with plans for a tougher, legislated settlement. If the industry complies with the proposals, the cost is expected to exceed $600bn.

The first settlement, agreed in June 1997, gave tobacco companies exemption from future class actions for damages caused by cigarettes. The Senate's new proposals would remove that protection.

BAT shares rose after it reported better-than-expected first quarter profits of pounds 573m, a two per cent fall. Profits had been expected to fall to pounds 560m in comparison with last year, when BAT sold First Federal, a US savings and loan association.

Sales of BAT's US products - Kool, GPC, Misty and Capri - slumped by 10 per cent to 16 billion cigarettes after rivals launched new brands.

Results were bolstered by the group's financial services wing, British American Financial Services (BAFS), which saw profits leap by 16 per cent to pounds 298m. BAFS is set to merge with Zurich Financial Services on June 12. Zurich will take a 57 per cent stake.

Eagle Star, an insurance subsidiary of BAFS, said claims from the April floods would be lower than feared. If other insurers have a similar exposure, the total cost of the floods will be pounds 300m. Damage was at first expected to come to pounds 500m.