The bank's bad bet could curtail profits for years to come. FORTUNE -- For years, JPMorgan Chase (JPM), perhaps the riskiest bank in the world, got a pass. Sure there were minor hiccups along the way. But basically investors had the attitude with the bank run by Jamie Dimon that they were going to be hands off. Sub-prime mortgage loans: You've proved you can handle them. Foreclosure problems: We're sure you've got your best people on it. A derivative portfolio roughly the size of the GDP of India: We trust that you have covered your bets. In fact, despite its huge size and complexity and risk, investors have allowed Dimon and JPMorgan to skate by on one of the smallest capital cushions, which is how much equity you have to protect against losses, on Wall Street. When you sort JPMorgan's loans and investments by riskiness, a dubious calculation, but used by Wall Street nonetheless, the bank holds an equivalent of just 10% of that as capital. That compares to 13% at Citigroup (C) and 15% at Goldman Sachs (GS). That shortfall, though, didn't seem to bother investors. JPMorgan's shares were rewarded with one of the richest valuations on Wall Street. Until recently, it was one of the few big banks to trade above book value, meaning Wall Street believed it was worth what it said. Citigroup's shares trade at a price-to-book of 0.5.
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