This time around, Citigroup Inc. was playing defense.

When the giant banking company moved to snatch up European American Bank this week, its aim was simple: thwart outsiders from encroaching on its home turf.

Citi said it will pay $1.6 billion for European American, the Uniondale, N.Y., subsidiary of ABN Amro Holdings NV, and assume $350 million of preferred stock.

The deal should help Citigroup shore up its base in the New York market, where it is facing increased competition from local thrifts and the encroachment of out-of-state banking companies. New York is a potential gold mine of cheap deposits and small and middle-market commercial banking business.

ABN Amro, which put European American on the block last month, was seeking up to $2 billion of cash to help fund its purchase of Michigan National Corp.

Sources said the bidding drew interest from North Fork Bancorp, a highly acquisitive company in Melville, N.Y., and FleetBoston Financial Corp., which is close to completing its purchase of Summit Bancorp in Princeton, N.J. Both companies have shown an intent to expand their commercial banking activities in the New York market.

Fleet is seen as a particular threat to New York-based financial institutions.

"The last thing Citi or Chase wants to see is a large regional competitor coming in and eating their lunch," said Mark Fitzgibbons, an analyst at Sandler O'Neill Partners. "In addition to being earnings-accretive" the European American deal "also keeps out of the market a very serious competitor."

David Berry, director of research at Keefe, Bruyette & Woods Inc., said the deal, announced late Monday, is roughly 14.4 times EAB's 2000 earnings and in line with other recent bank acquisitions.

Marge Magner, who recently marked her first anniversary as head of Citi's sprawling U.S. retail banking operations, said during a conference call that the deal would strengthen its position on Long Island and give it a launching pad for expanding its middle-market banking in the New York region.

The deal would also reconfirm a commitment to the branch banking business, she said. "Branches are alive and well and an important part of access to customers."

European American Bank has $15.4 billion of assets, $11.5 billion of deposits, and 97 branches. Ms. Magner said the purchase would significantly add to Citi's presence in Long Island's Nassau and Suffolk counties, home to many of the area's most affluent communities. Citi has 28 branches in those areas, while European American has 67. In addition, the acquisition would give Citi 30 more branches in metropolitan New York.

But it would have little impact on Citi's market position overall in the area. It ranks second behind J.P. Morgan Chase & Co., with 9% deposit share and 121 branches.

Citi once dominated the New York retail market, but mergers in the region - particularly Chemical Banking Corp.'s 1996 purchase of Chase Manhattan Corp. - have diminished its stature.

"Their comparative advantage is not what is used to be," said George Bicher, an analyst at Deutsche Banc Alex. Brown. "This is an opportunity to shore up their home base. I don't see it leading to a broader expansion just yet."

The deal would give Citi ammunition to fend off efforts by Morgan Chase and FleetBoston to dominate middle-market lending in the region. European American would bring 450,000 new households as customers, but it would also bring an expertise in middle-market and small-business lending. Ms. Magner admitted that those two businesses were deficiencies of Citi's.

"We feel strongly that broadening our reach on Long Island makes a tremendous amount of sense," she said. "Middle-market lending - we have wanted to do more. This really gives us a platform to grow in that."

Edward Travaglianti, chairman and chief executive officer of EAB, would join Citi as head of a newly formed Citibanking commercial markets group that will be responsible for middle-market and small-business lending. Brendan Dugan, EAB's president and chief executive officer, would become chief operating officer of the commercial markets group. Maura Marcus would continue to run the Citibanking retail distribution group. All three would report to Ms. Magner.

"Marge is clearly focused on strengthening and solidifying Citi's share here," said Richard Strauss, an analyst at Goldman Sachs Group. "But it's not their first priority. Their first priority is … building in Europe."

Citi's European effort includes retail but focused more on capital markets, Mr. Strass said.

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