Exchange traded funds tracking the financial sector shed more than 1% on Friday on lingering weakness in shares of top holdings Citigroup (NYSE: C) and Bank of America (NYSE: BAC).

Financial Select Sector SPDR Fund (NYSEArca: XLF) was on track for a weekly advance heading into the session but Friday’s drop erased the gains. Citi and B. of A. were both down about 1%, while the financial ETF slipped 1.4%.

Investors are worried about banks’ exposure to mortgage-backed securities following reports this week that Goldman Sachs (NYSE: GS) was bracing for subpoenas from U.S. prosecutors. [Goldman Legal Woes a Reminder of Financial ETFs’ Headline Risk]

Also, investors are concerned about net interest margins at banks if interest rates don’t rise.

“Long-term rates have declined and market expectations for increases in short term rates have been pushed out,” Deutsche Bank analysts said in a report Friday. Net interest margins may be at risk if rates don’t rise, which would disappoint investors, they said.

Financial Select Sector SPDR Fund


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