Anyone who bought bank shares before the crisis has made punishing losses. But what are their prospects now?
Millions of shareholders in high street banks received cold comfort from the trading statements issued by Barclays (LSE: BARC.L - news) , Lloyds and Royal Bank of Scotland (LSE: RBS.L - news) this week.
An investment of £1,000 in Barclays five years ago would be worth just £452 today, even after dividends are taken into account. But investors who lost more than half of their money might reflect that it could have been worse.
Had they backed Lloyds, they would have lost more than 90pc of their capital and be left with less than £83 for every £1,000 invested. Even more eye-watering losses were suffered at RBS, which owns NatWest and Coutts, where the same sum invested five years ago is currently worth just £58, according to calculations by independent statisticians at Morningstar (NasdaqGS: MORN - news) .
No wonder normally garrulous stockbrokers such as Killik & Co simply could not bring themselves to talk about bank shares this week, despite several requests to do so. But attempting to ignore this catastrophic destruction of capital will not make it go away.
Even if you think you are untouched, your pension is likely to have been hit by the banking crisis because these blue-chip shares were core holdings of most managed funds. Before Lehman Brothers, an American investment bank, went bust on September 15 2008, Britain's high street banks were regarded as low-risk, high-dividend stocks suitable for most investors.
Since then, the banks have been battered by a series of shocks. As if the global credit crisis did not do enough damage, most have been implicated in mis-selling payment protection insurance and fraudulently manipulating the London Interbank Offered Rate (Libor), a benchmark that is used to set a wide variety of credit costs. The ultimate compensation bills for both these scandals remain unknown but are expected to run into billions of pounds, not least because the Libor scam involves litigation in the United States.
As if to top up shareholders' cup of woe, individual banks have managed to make their own mistakes such as HSBC (LSE: HSBA.L - news) , Britain's biggest bank, which apologised to the US Senate this summer for facilitating a multibillion-dollar money-laundering operation for the illegal drugs trade.
On a brighter note, investors in HSBC have lost less than shareholders in any of the other major high street banks since the credit crisis began. An investment £1,000 five years ago would be worth £810 today.
Perhaps even more surprisingly, Santander (Madrid: SAN.MC - news) , the Spanish giant that bought Abbey (Irish: DOY.IR - news) , Alliance & Leicester and Bradford & Bingley (Xetra: 602362 - news) , stands second among the banking "big five" with a return of £534 on £1,000, despite desperate problems in Spain's property market.
Better still, shorter-term returns suggest that some of the fear and loathing in this sector has been overdone. For example, investors brave enough to buy Barclays shares a year ago have enjoyed gains of 18pc, while HSBC and Lloyds bounced by about 15pc and even RBS is 5pc ahead. Shareholders in Santander are alone among the big five banks in nursing losses over the last year; the shares are 12pc down.
That serves as a healthy reminder that the first step towards making a profit is to buy low. So are bank shares at today's prices good value, or merely cheap?
Lauren Charnley of stockbrokers Redmayne-Bentley pointed out that even the banks admit there is worse news to come, with Lloyds, for example, setting aside £4.3bn to pay compensation to customers it wrongly sold PPI policies.
She (SNP: ^SHEY - news) added that neither Lloyds nor RBS was expected to resume dividend payments soon. "The banks are by no means out of the woods. There will undoubtedly be money to be made by investing in the sector, but this will carry with it a relatively high degree of risk and is certainly not for the fainthearted," she said.
Similarly, Ben Yearsley of Charles Stanley stockbrokers erred on the side of caution: "The first thing to say is that with the two state-backed banks RBS and Lloyds forget the notion that they will return to the price they once were. That simply isn't going to happen.
"Value has been permanently destroyed in those cases, therefore you need to assess the future prospects based on the current situation, not what once was. You also need to consider the contagion effect and what happens if a major European economy completely falls to pieces what exposure do banks have?
"RBS and Lloyds could be seen as a recovery play there may well be substantial capital profits to be made as they continue their recovery. As has been seen with the Direct Line float recently, RBS does have some decent assets and they have repaid emergency loans and have withdrawn from the Government's asset protection scheme all positives.
"However, don't discount the possibility that banks will need more capital injections. Therefore they are currently either cheap or too expensive it's almost a binary bet. I'm not convinced yet that the banks have fessed up to all the bad debt on their books and politicians have their sights still set on them, so further regulation could harm future prospects."
So-called "light touch" regulation is now widely blamed for senior bankers running amok and so the industry is being forced to pursue lower risk and return strategies for the foreseeable future. Jonathan Newman of stockbrokers Brewin Dolphin (Other OTC: BDNHF.PK - news) predicted: "The regulatory environment will become increasingly onerous.
"Mis-selling scandals, which only ever exceed all expectations of their seriousness, will lead to tightening of the relationship between a bank and its customers. There will be less and less opportunity to make the levels of fee income seen in the past.
"Consequently, we remain neutral towards the sector and prefer those banks with exposure to growth markets such as the Far East, such as Standard Chartered (Other OTC: SCBFF.PK - news) and HSBC. As well as growing demand prompted by growing trade activities, these banks start with more conservatively structured balance sheets."
But Peter Tasou of Investec Wealth & Investment said: "We have had a more positive view on the UK banking sector over the last year or so and remain cautiously optimistic going into 2013.
"With Barclays, Lloyds and RBS continuing to trade at material discounts to book value, investors may have scope to further profit from the sector, even after a very strong performance in 2012 for share prices."
His colleague John Haynes, head of research at Investec (EUREX: INVF.EX - news) , added: "We favour Lloyds over RBS because we expect a dividend payment from Lloyds in 2013 as a sign of its return to respectability.
"We actually like RBS, too, because it has good assets and has done an excellent job cleaning up its legacy problems. But it is suitable only for higher-risk investors since, among other factors, the Government's 83pc stake leaves the bank at the mercy of a change of the political landscape in the UK."
So this is clearly not a sector suitable for risk-averse investors today, although many people bought stakes in banks directly or indirectly in the past. Millions acquired free "windfall" shares following building societies' demutualisation.
Those investors may hope that the past year's recovery in bank shares continues and does not merely prove to be what City cynics call a dead cat bounce.