Investors in First Union's bonds stood by the securities Wednesday after the company announced an accounting change that would reduce 1999 earnings.

First Union Corp.'s 10-year subordinated bonds continued to change hands at 105 basis points over Treasuries, as they have for the last week, said traders.

Only a few investors left the company's trust-preferred securities, market experts said.

Bond investors are less concerned about this event because it is unlikely to affect ratings, said bank bond analyst Jay Weintraub of Merrill Lynch & Co.

First Union, he said, "is still talking about higher earnings in 1999 than in 1998. This is a reduction in the growth of earnings. The bonds are likely to shrug all this off."

Indeed, most bond investors took the news as a step in the right direction.

"This is a positive," said bank bond analyst Ethan M. Heisler of Salomon Smith Barney. "It will add more transparency to the company's results. First Union is a strong company. Gain-on-sale accounting is considered very controversial and potentially misleading when reflecting revenues."

Gain-on-sale accounting lets companies take gains on a securitized pool of loans before the gains actually come in. Used mostly by subprime finance companies, it tends to inflate earnings and relies mostly on assumptions, explained one bond analyst.

"Many companies were overly optimistic, corrupt, or just plain dumb when it came to assuming when the gains would come in," the analyst said. "No company has ever proven to be over-conservative."

Bond analysts are also more concerned about asset quality and capital ratios. "I'm more concerned whether they have a cushion to absorb the shocks of a downturn," said one analyst.

In other capital-market news, Wall Street sources said National City Corp. plans to issue $300 million of 10-year subordinated debt as early as today.

The issue, which was priced at 110 basis points over comparable Treasuries on Wednesday, was oversubscribed 3 to 1, said traders.

The deal was initially priced at 115 basis points over comparable Treasuries-a more favorable price for investors-but National City is a company that does not issue often, so demand was strong, market experts said.

Most of the bonds were sold to "buy-and-hold" investors who tend to hold onto securities as opposed to "flippers," or short-term investors, who buy bonds and then quickly sell them, sources said.

National City's bonds are rated AA and A-minus by Standard & Poor's and Moody's Investors Service, respectively.

The deal's lead underwriter was Merrill Lynch.

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