I spent last week studying the latest results from Lloyds Banking (LSE: LLOY) and Royal Bank of Scotland (LSE: RBS).
I must admit, it was not easy going. Certainly, the 144-page statement from RBS must rank as the longest first-quarter update from any quoted company!
Your £1,048 'investment' in banks
As I'm sure you know, both Lloyds and RBS were bailed out by us, the hard-pressed taxpayers, to the tune of £66bn during the banking crash of 2008 and 2009.
And with 63 million people living in Britain right now, you, me and everybody else effectively has about £1,048 'invested' in the sector - whether we like it or not.
So just how are our Lloyds and RBS 'investments' faring?
Well, let me put it this way - I'm glad I didn't take the government's bailout as a 'buy' signal.
A £23bn paper loss
Here's a round-up of the stats:
For Lloyds, us taxpayers pumped in around £20bn during 2009 to acquire 27.6bn shares at an average price of 73.6p.
Right now, our stake represents 39% of Lloyds' share count and has a £16bn market value with the shares now at 57p. Our current loss on Lloyds is therefore 23%, or close to £5bn.
With RBS, we taxpayers injected around £45bn during 2008 and 2009 to acquire 9bn shares at an average price of 502p.
Our RBS stake represents 81% of the bank's share count and has a £26bn market value with the shares currently at 294p. Our loss on RBS therefore stands at 41%, or around £19bn.
Tot the figures together and all 63 million of us are carrying a total paper loss of £23bn from that £66bn bailout.
In other words, our £1,048 'investment' in the banking sector is now worth less than £700 per person. I must say, I've enjoyed better returns from shares.
The contrarian buys for 2013... and beyond?
Still, we must always think long term about these things. I mean, we'll always need banks to keep the economy moving.
And surely after the financial crisis and the industry backlash, we might expect the sector to be run prudently for some time to come. What's more, at least our state-backed banks are still making money.
In fact, Lloyds claimed underlying profits at its core operations improved 19% to £1.9bn during the first three months of the year. Meanwhile, RBS continues to rake in more than £1bn a quarter on the same 'core' and 'underlying' measures.
So perhaps Lloyds and RBS are the contrarian buys for 2013...and beyond.
Price to book
Certainly, the valuations of the two banks are not exactly full of optimism. Lloyds, for instance, is valued at a fraction above its latest 55p per share net tangible asset value. Meanwhile, RBS trades at 38% less than its latest 459p per share net tangible asset value.
For profitable companies, surely these shares deserve ratings well above their book value? Well, perhaps.
But before you become too excited about those book-value ratings, plough through that 144-page RBS statement.
You'll then see adjusted profits exclude a whole string of items, including costs relating to the government's asset protection scheme, payment protection insurance mis-selling, regulatory fines, sovereign debt write-offs, general restructuring, bonus taxes and the bank levy.
So the exact 'profitability' of the banks is somewhat subjective.
In addition, the balance sheets of both Lloyds and RBS shrank last year, with that of Lloyds falling 6% and that of RBS sliding 10% as both groups slimmed their operations. Further disposals may affect future balance-sheet valuations, too.
And it's not as if other banks are valued well above book, either. For example, the last time I looked, both Barclays and Santander traded below their net asset values.
An easier alternative to banks
As I mentioned at the start, studying the results of Lloyds and RBS was not easy going. True, it seems the sector is showing signs of recovery and promise, but trying to work out what exactly is going on was far too much for me.
Indeed, I'll take straightforward blue chips such as Unilever or Diageo any day of the week - such stocks have proved you don't need to invest in complicated situations to earn extremely handsome gains.
That philosophy is also favoured by Motley Fool Share Advisor, where our crack team of Fool analysts have shunned both Lloyds and RBS on grounds of complexity and uncertainty.
In fact, the team tell me they rate 23 other shares as having far more appealing valuations and prospects than Lloyds and RBS.
You can learn more about these 23 'buys' by joining Motley Fool Share Advisor today.
It's just my opinion, but I'm convinced a spread of these 23 opportunities should do a lot better than my £1,048 'investment' in the banks!
Until next time, happy investing!