Shares of major securities firms fell and bank stocks sputtered Monday despite Lehman Brothers Holdings Inc.'s unexpectedly strong first-quarter earnings.

Fueled by trading and investment banking revenue, Lehman Brothers' net income for the period more than doubled to $541 million, or $3.69 a share, from $211 million, or $1.57 a year earlier. The consensus for company was $2.88, according to First Call/Thomson.

"Lehman continues to shoot the lights out," said Michael Holland, who heads the New York investment firm Holland & Co. "They have diversified their revenue."

Early in the day, shares of other securities firms surged as investors bet that the first-quarter earnings of other brokerage firms, such as Merrill Lynch & Co., Morgan Stanley Dean Witter & Co., and Goldman Sachs Group would be just as strong.

Those companies benefited in early trading because they are strong in underwriting initial public offerings or had launched Internet initiatives, Mr. Holland said.

Nevertheless, shares of Lehman fell $3.625, or 3.96% to $87.8125; Merrill, $2.8125, or 2.68% to $102; Morgan Stanley, $1.1875, or 1.34% to $87.6875; and Goldman, $3.0635, or 2.63% to $113.4375.

Bank shares, which were flying high just last week, fell further. Brokerage firms are less sensitive to interest rate hikes than banks are, said Mr. Holland, noting that the Federal Reserve is meeting today and is generally expected to hike the Fed funds rate by 25 basis points.

"We had a couple of glory days last week," said Frank Barkocy, senior analyst at Keefe Managers, but the market "is back to the reality of focusing on the interest rate environment."

The American Banker index of the 50 largest banks fell 2.77%, while its index of 225 banks fell 3.46%.

Also hurting bank stocks was a rule proposed Friday by the Federal Reserve and Treasury Department that would restrict merchant banking, Mr. Barkocy said. Shares of Chase Manhattan Corp., which has a strong venture capital business, were down $4.4375, or 4.88%, to $86.5625.

Also weighing heavily on the sector was National Commerce Bancorp's announcement that it plans to acquire Durham, N.C.-based CCB Financial Corp. for $1.94 billion. (See story on page 1.) "The terms were not that outstanding," Mr. Barkocy said. "The deal is being viewed as a merger of equals. Those that are looking for consolidation view these terms as low."

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