Wall Street doesn't like surprises, so it was no shock that bank analysts expressed strong disappointment last week when First Union Corp., the third-largest bank in the Washington area and the sixth-largest nationally, cut its earnings estimate for 1999 again.

The announcement bolstered a growing sense among some analysts that the bank's management is floundering and that the company is ripe for picking as a takeover target -- speculation that First Union chairman and chief executive Edward Crutchfield gruffly denies.

"We have no interest in selling," he told analysts Tuesday during a conference call. Neither he nor other top executives of the company were available for comment.

Sean Ryan, analyst for the investment banking company Bear Stearns & Co. of New York, wasn't swayed. "They sealed their fate Tuesday when they lowered their estimate because it cut the last lingering shred of management's credibility," he said. Compared with shares of similar banks, that makes the company's stock price low relative to its underlying value, he said, and increases its appeal as a possible acquisition by a rival such as Wells Fargo & Co. of San Francisco, Chase Manhattan Corp. of New York or Bank One Corp. of Chicago.

Those companies would find First Union particularly attractive because of the bank's relatively strong securities and brokerage business, which it aggressively entered last year by buying Wheat First Butcher Singer Inc. of Richmond, Ryan said.

Crutchfield spent nearly two hours on the conference call with analysts explaining why the Charlotte company now expects to earn $3.40 to $3.50 a share in 1999. That's down from the $4 a share the bank predicted earlier this year that was, in turn, already down from the bank's even earlier estimate of $4.30 in January.

Crutchfield blamed the latest revision on the higher-than-expected costs of integrating CoreStates Financial Corp. of Philadelphia. First Union paid $20 billion a year ago for CoreStates during a three-year buying binge that included purchases of Signet Banking Corp. and Wheat First Butcher Singer Inc., both of Richmond. He also cited higher expenses related to expanding the bank's Internet presence and to streamlining branch operations, an increase in reserves against potential loan losses and a decline in revenue from one-time gains such as the sale of securities.

The bad news didn't change the company's stock price much because investors following the company closely say the stock had already been discounted after the company's earlier revisions of estimated earnings.

The company's stock price was at its highest over the past 12 months last summer, when it reached $65.93 1/2, and at its lowest last fall when it was $40.93 1/2. First Union's stock closed Friday at $46.18 3/4, up 56 1/4 cents in New York Stock Exchange trading.

During the telephone conference, Crutchfield said the company's strategy of growing by acquiring brick-and-mortar banks has ended and will be replaced by a strategy that focuses on growth through electronic outlets such as the telephone and the Internet. He stopped short of saying the company's buying spree had been a mistake. And the company intends to complete its announced acquisition of the brokerage firm Everen Capital Corp. of Chicago by the end of September.

"Management is finally acknowledging that assumptions used to support acquisitions such as CoreStates were too rosy," Merrill Lynch & Co. said in a published research report following the company's announcement. "We are even more convinced that the company's acquisition strategy has been permanently altered."

Analysts said First Union's problems are for the most part its own and don't reflect overall banking trends. One exception is the bank's decision to increase its reserve to absorb potential loan losses by as much as $110 million, which would bring the total reserve to $710 million.

Analysts viewed that move as having a minimal effect on the bank's bottom line. They said it reflects an industry trend toward higher loan losses, though perhaps not as high as banking regulators have warned could be in the offing. Analysts added that loan-loss rates historically have been higher than they have been in recent years.

Analysts also applauded the company's continued expansion into the securities business, including mutual funds and brokerage services, which many believe will yield fatter profits than traditional bank products.

How the company handles the absorption of its acquisitions and its continued foray into Internet banking is of much more concern.

The company is "now a `show me story' more than ever," said Sally Pope Davis at Goldman, Sachs & Co.

A Look at

First Union Corp.

Business: The nation's sixth-largest bank, First Union has branches along the East Coast, operating about 2,400 locations and 3,400 ATMs that serve about 16 million customers.

Headquarters: Charlotte

Founded: 1908 (as the Union National Bank of Charlotte)

Chairman, chief executive: Edward E. Crutchfield Jr.

Ticker symbol: FTU on the New York Stock Exchange

Employees: 71,486

Web address:www.firstunion.com

First Union's Role in the Region

First Union is the third-largest banking company in the region, with $6.12 billion in deposits and 141 branches.

Deposits Share of

(in billions) D.C. market Branches

Suntrust Banks $9.77 18.23% 165

(owns Crestar)

Bank of America Corp. 8.40 15.68 161

(NationsBank)

First Union Corp. 6.12 11.42 141

Saul Centers 4.74 8.84 128

(owns Chevy Chase banks)

Riggs National Corp. 3.64 6.79 57

Earnings surprises at First Union, including last week's announcement that the bank would miss second-quarter earnings estimates have hurt the company's stock, which has been underperforming the stock of other Southern banks at a time when the market has been hard on banks.

Source: Bloomberg News, Dow Jones Interactive, SNL Securities