Bank of America, Citigroup Power Financial ETFs | ETF Trends

Financial exchange traded funds were among the top sector performers in Wednesday’s rally as a settlement from Bank of America (NYSE: BAC) on mortgage-backed securities repurchases fueled hopes the deal will clear some of the uncertainty clouding bank stocks.

Shares of Bank of America and Citigroup (NYSE: C) were up about 3% while a financial-sector ETF added 2%. [Financial ETF Jumps]

The Bank of America deal “settles claims relating to $424 billion in mortgage-backed securities made up of mortgages originated and packaged for sales by Countrywide Financial, which Bank of America bought during the buildup to the subprime crisis,” Miller Tabak analysts wrote in a note Wednesday. “These lawsuits were primarily related to failures of due diligence, and the lead plaintiffs included the Federal Reserve Bank of NY and some other ‘heavy hitters.’”

Although the settlement “could well be a relief for Bank of America, we think it is still large enough to generate saliva production for active members of the plaintiffs bar,” they added. “In 2011-2012, we expect to see increased legal action by investors against investment banks who sponsored non-standard mortgage securities in the 2004-2008 period.”

U.S. stock ETFs rose Wednesday after lawmakers in Greece voted in favor of austerity measures in exchange for additional financial support.

Volatility-linked ETFs pulled back Wednesday, suggesting investors were less fearful after the Greek vote. [VIX ETFs Fall]