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]
Investors are hoping a recent Bank of America mortgage settlement will lift some of the uncertainty dogging the stock, which is down nearly 20% year to date and weighing on financial ETFs. [Will Mortgage Settlement, Card Fees Revive Financial ETFs?]
“While we’re not pleased to see losses continue at [Bank of America], we think the settlement, along with the other announced charges, is a yet another much-needed step toward putting many of the company’s past mistakes behind it,” Morningstar’s Jim Sinegal said in an analyst note on the company.
Financial Select Sector SPDR Fund
Chart source: StockCharts.com.