SunTrust Banks Inc. is expected to be on its best behavior when it reports second-quarter profits early Friday, but that is not stopping the Atlanta banking company from launching flaming arrows at its rival.

Friday's earnings report is a turning point in SunTrust's six-week-old bid to oust First Union Corp. as merger partner for Winston-Salem, N.C.-based Wachovia Corp. The average estimate of Wall Street analysts tracked by First Call/Thomson Financial is for SunTrust to report $1.16 a share. That would be an increase of 6% from the year earlier.

Analysts said it would be nearly impossible for SunTrust to expect its bid for Wachovia to survive if it had any negative surprises in the quarter. "I expect that it will be a very solid quarter," said Catherine Murray, an analyst at J.P. Morgan Securities. "No surprises. I don't think they would have done an unsolicited offer if they didn't think the business was solid."

Included in the quarterly calculations will be two measurements of return on equity. The Securities and Exchange Commission asked SunTrust to add a calculation that would include net unrealized gains from the company's substantial investment in Coca-Cola Co., about 48 million shares. SunTrust had previously reported only return on equity that excluded the gains - what it refers to as "return on average realized shareholder equity."

The company recently filed an amended financial statement with the SEC that included the new calculation going back to the first quarter of last year. Excluding the Coke stock, SunTrust's ROE rose from 21.33% in first-quarter 2000 to 21.85% in the first quarter of this year. Including the gains from Coke shares, ROE fell from 17.18% to 16.92% in the same period.

Meanwhile, SunTrust and First Union were busy this week trading insults and accusing each other of financial shenanigans.

In a letter of protest against First Union's merger application filed late Monday with the Federal Reserve, SunTrust accused its rival of using a questionable tax shelter on certain real estate leasing transactions. The letter suggested that First Union could have "significant exposure" to what the Internal Revenue Service has called a "tax avoidance" transaction and that First Union's capital position could be in doubt.

"We believe the impact of such a ruling on First Union's retained earnings, capital and future income would be devastating," SunTrust's letter said.

An angry denial came from First Union Tuesday morning. "It's an act of desperation," said Robert Kelly, First Union's chief financial officer, in a telephone interview. "The only thing I can say is that SunTrust is trying to disseminate as much inaccurate information as it can."

Mr. Kelly said that "virtually every bank" uses the tax strategy for the same type of transaction. "We have fully accounted for them, and there is no impact to capital," he said.

He proceeded to raise questions about SunTrust's own capital position. Steadily declining Tier 1 capital and total capital ratios reported by SunTrust for the past several quarters were issues raised by First Union in its protest letter filed June 13 in response to SunTrust's Fed application.

First Union asserts that SunTrust's aggressive stock buybacks and its high dividends raise questions about its capital strength, especially in a combination with Wachovia. Including a recently authorized five-million-share buyback program, SunTrust will have bought back 15% of its shares since 1999, far more than the 3% industry average. First Union has bought back 3% of its shares in that period.

A merger with Wachovia would reduce SunTrust's Tier 1 capital, now at about 6.85%, to between 6% and 6.25%, according to First Union's protest letter. Regulators would consider 6% the threshold for a "well-capitalized" institution. "This type of 'financial engineering' may produce higher reported earnings per share and return on equity but at the cost of a decidedly weakened financial condition," First Union told the Fed.

First Union has been quietly raising the issue of SunTrust's capital position with large institutional shareholders, but now the company seems to be making an effort to get its viewpoint more widely distributed. It includes information about SunTrust's capital position on a portion of its Web site devoted to the merger with Wachovia.

"We welcome an examination of our capital position," said Barry Koling, a SunTrust spokesman, in response. "We will offer numbers on our capital if First Union shows us where the numbers are" regarding the tax treatment. "It's not about name calling; it's about numbers," he said.

SunTrust has traditionally been among the first commercial banks to report each quarter, though this time, anticipating a public relations blitz in the days and weeks preceding an Aug. 3 Wachovia shareholder meeting, the company moved its reporting date even earlier.

"The report date was marginally speeded up," Mr. Koling said. "We want to get a good story out there so we can talk about it."

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