Since 2007, investors in bank stocks have faced mind-boggling writedowns, billion-dollar capital raises, new regulations and government-fuelled asset inflation. This environment has not been for the faint of heart. Investors have lost money on all sides: not selling soon enough, not buying soon enough, or some combination of the two.

Last year was the best year to own financial stocks since 2003; whereas 2011 was the worst year to own them since 2008. Nevertheless, the benchmark BKX bank stock index is still more than 50 per cent below its peak in 2007. This year the story for US banks will be simpler: we will see a return to the fundamentals.

After 2007 and 2008, when the banking industry wrote down more than $600bn in assets and lost more than $1tn in market capitalisation, US government actions in 2009 boosted financials, particularly as the Federal Reserve encouraged inflation to prop up the value of assets on bank balance sheets. But these valuations reflected financial gimmickry, not core operating earnings. The good times did not last long. The US legal system was soon upon the banks. In 2011 and 2012, the industry was dominated by forced mortgage repurchases, foreclosure settlements and other consumer legal claims and regulatory settlements.