I always have mixed emotions about investing in banks, having lost all sorts of wealth in the local WaMu crash - I spent a fair amount of time working there as did my lovely wife. I certainly understand the capitalization and the book value story of banks - sometimes though I just get that gut reaction to the fact that it is a bank (mind you I went to work for WaMu in the dot-com crash looking for a stable job to support my growing family).
These days though I find myself invested in a few banks as they are just so dirt cheap! I have been invested for a while and have some healthy returns already, and now it seems the rest of the market is starting to catch wind of what I have been thinking for some time... these things are severely under-valued! Yes I know Buffett has been in Wells Fargo for some time, but the rest of the market seems to be coming around as well now and are validating the idea. Interesting to see Meredith Whitney's take on the sector being one where the revenue is there ($BAC revenue being $18B), and the growth in value coming from execution. This of course at a time when execution has been all that banks and every other business has focused on for the last two years seems like a no brainer.
What is interesting is that the rise of WaMu was all based on a growing sub-prime lending market while the current profitability in banks is realizing the potential losses from these assets and then profiting from the upside along with their steady revenue stream for normal banking activity... I know Meredith was talking mostly about BAC & C, but I like BAC & AIG a little better with WFC & JPM coming in a close second at the current prices.