As the tobacco industry and the US government inched towards finalizing their historic $368.5 billion settlement on tobacco-related health claims, the news for the powerful industry was none too good. President Bill Clinton criticized the deal for undercutting the Food & Drug Administration's regulatory authority over tobacco. Joe Camel, the cartoon character that became a symbol of teenage nicotine addiction in the US, was relegated to marketing history by maker RJ Reynolds. And there was growing congressional criticism of the settlement's proposal to make the payments tax-deductible, which the White House said would rip a hole in the federal budget. Any deal must ultimately be approved by congress, and signed by the president, which is not expected until next year.
The conventional wisdom in the financial markets is that any ultimate settlement is good for tobacco. Bankers and analysts argue that it erases the uncertainty over the financial implications of the numerous pending class-action suits.
But the celebration may have come too soon. "The bottom line is that there's still a lot of uncertainty," says Nicole Delz Lynch, a credit analyst with Standard & Poor's, which has put affected tobacco companies - A rated Philip Morris, BBB rated RJR Nabisco Holdings, AA rated Loews and A+ rated BAT Industries - on credit watch, with negative implications.