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I don’t do share tips. I prefer to leave that to my former colleagues on Investors Chronicle. But here is a hypothetical tip for you to read – and, once you’ve done so, I shall ask you two simple questions.

“Nonspecific Motors, the carmaker, this week admitted that the cost of restructuring its business – to separate its commercial trucks division from its core saloon car operation – would run to billions of dollars. Analysts forecast that profit margins would inevitably fall, reducing the company’s return on capital to single figures. For the company, which was bailed out by the US government in 2008, at the height of the financial crisis, it is the latest in a series of setbacks. A refinancing in 2009 left the manufacturer reliant on the sale of convertibles in a time of inclement conditions. Earlier this year, it was forced to recall one of its best-selling models, the Vendre PPi, and pay customers $3bn in compensation. Since then, concerns over its debt have resulted in a downgrade and called into question its return to full public ownership.”

My questions are:

i) Do you think this is a “buy” tip, or a “sell” tip?

ii) Would you change your mind if I told you I was describing a UK bank?

I assume your answers are “sell” and “no”. But I say “assume” because that would put you in the minority of UK private investors, judging by data from stockbrokers. Everyone else – perhaps because they don’t read the Financial Times – appears to regard UK bank shares as the best investment money can buy.

No matter how uncertain the situation, punters just can’t get enough of them.

Take the disasters that I attributed to that fictional carmaker. All have happened to UK banks for real.

This week, Sir John Vickers’ Independent Banking Commission proposed that UK banks must separate their high street operations from their investment banking arms and meet new capital requirements for both sides of these businesses. Analysts estimated that the extra cost of this restructuring would run to £7bn a year and forecast that banks’ margins and returns must fall.

Justin Bisseker, banks analyst at Schroders, said: “All will barely scrape to deliver returns above cost of equity.” Jon Pain, regulatory expert at KPMG, forecast “single-digit returns on capital”.

But what did private investors do? They piled into bank shares. According to broker TD Waterhouse, the top three buys this week were Barclays, Lloyds and Royal Bank of Scotland (RBS) – and by a long way. They accounted for nearly 55 per cent of all trades in the days after the Vickers report.

A month ago, concerns were growing over UK banks’ exposure to the eurozone debt crisis? What did private investors do? They bought shares in the UK bank with the largest exposure to Greek bonds: RBS. In the week to August 9, TD Waterhouse revealed that RBS was the most traded stock, and the overall buy/sell ratio was nearly 3/1. Which were the other two? Barclays and Lloyds, of course.

In May, after the banks dropped their legal challenges over the mis-selling of payment protection insurance (PPI), Lloyds admitted that it would have to make a £3.2bn provision to settle customer compensation claims. Barclays and RBS subsequently set aside about £1bn each. Which were the top three buys that month? I don’t even need to tell you, do I?

Even in the aftermath of the financial crisis, when banks were having to shore up their capital with weird and wonderful bond issues, such as contingent convertibles, it was still their equities that investors were buying.

Now, I am not suggesting that banks will never again be a sensible investment. Some believe they will return to the traditional values of the past century – when bank managers were pillars of the community and bank dividends the cornerstone of income portfolios. Adviser Brian Dennehy evoked 1940s sitcom Dad’s Army this week, suggesting “it was inevitable that banks would revert to a utility status, more like the banks of Captain Mainwaring’s time.”

But with so much uncertainty over the impact of reforms – and the eventual disposal of government-held equity stakes – is now really the time to be buying?

I suggest that non FT-reading investors be forced to answer these two questions before being allowed to trade:

i) Are you familiar with CoCos?

ii) What do you think of Basel III?

Anyone who answers: “Yes, I like clowns (or chocolatey breakfast cereals)”, and “I haven’t seen it yet but I do enjoy sci-fi trilogies”, should have their sharedealing accounts closed immediately.

Even those who insist: “I understand the risks surrounding contingent convertibles”, and “I think future capital adequacy requirements are largely priced in”, should be asked the same question that would have occurred to buyers of Nonspecific Motors’ hypothetical hatchbacks: Are you really sure you want to get into this vehicle?

matthew.vincent@ft.com

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