While a number of high-profile names such as Sanjeev Shah and Ian McVeigh anticipate a significant bounce in UK banking shares, Luthman says the vast majority of these companies are too opaque and debt-ridden to be even considered for inclusion in his portfolio.
"If a formal valuation was to take place, I don’t think RBS or Lloyds would be worth anything at all," said Luthman. "The levels of debt are astronomical and are exacerbated by mounting social and political pressure."
"The days of repossessing houses are long gone, which is, of course, a good thing. However, this has done little to help UK banks, which in the past would have repossessed many thousands of homes in their current state."
Luthman says the bank-bashing culture that has become prevalent in the UK bodes very poorly for the sector.
"Higher taxes and harsher regulations will make the UK an unpleasant place to do business for some time to come," he added.
According to FE Analytics, 22 funds hold RBS in their top-10, while 23 include Lloyds. Six funds, including the £222.8m Schroder Recovery and £305m Santander Equity Income portfolios, hold both companies in their top-10.
RBS and Lloyds are down 48.97 and 60.8 per cent over a one-year period respectively. Both are down more than 90 per cent over five years.
Performance of stocks over 5-yrs
Source: FE Analytics
Luthman also points to the lack of transparency in UK retail banks as a reason not to invest.
"Since the dealings and balance sheets of banks are so opaque, it’s impossible to put a real value on them. If they were to rebound it would be a result of something completely unforeseeable; I don’t run my portfolio in that way," he explained.
Many commentators have argued that the UK’s long-term economic performance is dependant on the recovery of UK banks, but again Luthman disputes this.
"It’s true that a strong economy needs a strong banking sector, but who says we have to use Lloyds or RBS? If the UK needs banking finance, there’s nothing to stop it using Canadian or Chinese banks, which don’t have the same problems as our banks," he explained.
Luthman remains invested in the more internationally focused HSBC, but even his stake in this bank has fallen to around 1 per cent in recent months.
FE Alpha Manager James Thomson, who heads up the £137m Rathbone Global Opportunities fund, is equally scathing of the UK’s retail banks.
"I have absolutely nothing in UK retail banks, or global retail banks for that matter," he said. “I don’t see the need to invest in basket cases with so many other areas on offer."
A recent FE Trustnet study revealed that Luthman’s CF Walker Crips UK Equity Income fund is one of only two UK Equity Income funds to have beaten the sector average in each of the last five calendar years.