First Union Denies Tax-Shelter Charge Made by SunTrust
First Union Corp., responding to an attack by SunTrust Banks Inc., denied that the use of a tax shelter might force First Union to add to its level of reserves, a move that would decrease future earnings.</br></br>In a statement Tuesday, First Union said SunTrust had issued "false and irresponsible allegations." It continued, "We are disgusted."</br></br>The two banks are fighting to buy Wachovia Corp., a Winston-Salem, N.C., bank with valuable Southeast market share. First Union made a $14.35 billion friendly bid for Wachovia in mid-April. SunTrust, which sought a merger with Wachovia in December only to be rebuffed, responded to First Union's offer in May with a $14.65 billion hostile bid.</br></br>First Union, Charlotte, N.C., and SunTrust, Atlanta, have traded barbs since. SunTrust on Monday upped the ante in a letter to the Federal Reserve System, alleging that First Union used a controversial tax vehicle to avoid paying billions of dollars in taxes.</br></br>SunTrust's letter left some analysts and investors surprised at the extent to which SunTrust, once considered a genteel Southern bank, went to discredit First Union. "It is certainly very close to, if not over the line," said Harold Schroeder, who follows financial-institution stocks for hedge fund Carlson Capital in Dallas. "At this point, it's starting to look like a desperation move."