Fleet Financial Group dismissed higher bids by First Fidelity Bancorp. and Citizens Financial Group Inc. in awarding 25 Hartford branches to two Connecticut community banks, a source close to the negotiations said.

The decision to accept the lower bid from the community banks appears to be an effort to make it more difficult for strong competitors to build up a presence in Fleet's home market, the source said.

The sale is part of a 64-branch divestiture, announced Monday, which is a regulatory prerequisite for the bank's pending $3.7 billion purchase of Shawmut National Corp.

Such a strategy "would be consistent with Fleet's long-term orientation of developing a competitive advantage relative to others in the market," said Michael Mayo, bank analyst with Lehman Brothers Inc.

First Fidelity, whose shareholders on Tuesday approved its pending acquisition by First Union Corp., would not comment.

Citizens spokesman James Dorsey confirmed that the Providence, R.I.- based company made a bid for the Hartford branches, but would not comment on the size of the bid. Citizens currently has 17 branches in southeastern Connecticut.

Webster Financial Corp. and Eagle Financial Corp. bid jointly for the 25 Hartford branches, which have $1.3 billion in deposits, the source said. The two agreed to pay a premium of 6.25% for the deposits.

While not revealing how much more the larger banks bid, the source said Fleet figured it could afford to reject bids from large suitors that were below a 10% deposit premium.

This way, the source said, Fleet is drastically raising the entry price for competitors into the Northeastern marketplace. Now, to enter the market, the only option is to acquire a whole institution.

The list of acquirers mystified some observers.

The most surprising thing about the sale was that big players like First Fidelity did not win, and that the premiums paid were not higher, said James Moynihan of Advest Inc. in Boston. "We expected to see premiums in excess of 8%."

For the 6.25% deposit premium Webster and Eagle paid, the price for the branches comes to $81.3 million. Webster announced it would have to issue $27 million of extra capital, an offering that will be underwritten by Merrill Lynch & Co.

Assuming First Fidelity and Citizens bid at least 8% for the branches, Fleet could have received $104 million for the 25 branches.

For its part, Fleet would not comment on whether it has received higher bids from other banks. But a bank spokeswoman said factors other than price were considered in reviewing the bids.

"These considerations included whether the bidder was willing to retain the staff of those branches, and also the level of community commitment," she said. "These were two very important factors in the decision-making process."

Under an agreement with regulators earlier this year, Fleet agreed to minimize the layoffs and branch closures that normally occur in a large, in-region merger.

First Fidelity's bid for the Hartford branches was directed by Wolfgang Schoellkopf, currently First Fidelity's chief financial officer, the source said.

First Fidelity has 65 branches and $2.3 billion in deposits in Connecticut, most in Fairfield County. Mr. Schoellkopf and the First Fidelity management team will retain a significant degree of control over Northeastern acquisitions when the bank is merged into First Union.

One regional that did not express interest in the branches was BayBanks Inc., the source said. BayBanks itself is often rumored to be up for sale.

Fleet was advised on the divestitures by CS First Boston Corp. and Keefe, Bruyette & Woods Inc.

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