Financial exchange traded funds slipped Wednesday morning as Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC) led the decliners in bank stocks and credit fears rippled through global markets.

Financial Select Sector SPDR Fund (NYSEArca: XLF) fell 0.7% in preopen trade, while B. of A. dropped 1.7% and Wells Fargo declined 1.1%. The financial ETF rallied with the overall market last week but is still in negative territory for 2011.

The New York Post reported Wednesday that mortgage servicers are nearing a deal with federal and state officials to settle foreclosure-related claims. The deal would settle most claims against Bank of America, JP Morgan (NYSE: JPM), Wells Fargo and Citigroup (NYSE: C), according to the report.

“Bank stocks continue to lag the broader market as investor apathy toward the sector has weighed on valuations and price performance,” Sterne Agee analysts wrote in a recent report on the sector.

“Although uncertainty surrounding required capital levels is beginning to fade, concerns surrounding the persistently weak economy, pressured real estate values, and a tepid growth outlook have taken the forefront,” they added. “While continued asset quality improvement and capital redeployment will likely be a focus, tangible catalysts for bank stocks appear distant.”

The financial sector ETF lost nearly 1% on Tuesday and lagged the broader market. [Banks Sap Financial Sector]

Showing Page 1 of 2