Europe, Latin America Gain on U.S. in Wealth

BOSTON ( TheStreet) -- North America is no longer the world's richest region, dragged down by the financial crisis that began in New York and rippled across the country.

The U.S., Canada and Mexico were deposed by Europe, which had tighter controls on credit lending and securities trading. Latin America was the only region in which wealth increased.

Americans had more than $1 trillion erased from their retirement accounts from the stock-market crash, and esteemed global banks including Citigroup ( C), Bank of America ( BAC), Goldman Sachs ( GS) and JPMorgan Chase ( JPM) accepted government bailouts as the Obama administration tripled the nation's debt to pull the country out of the worst economic slump in more than seven decades.

Boston Consulting Group's findings are detailed in Delivering on the Client Promise: Global Wealth 2009, a report released Sept. 15, one year to the day of Lehman Brothers' bankruptcy. The credit crunch coincided with a recession that started about 10 months earlier, delivering a punch to the banking, real estate, automotive and retail industries, and prompting a doubling of the unemployment rate over two years.

Boston Consulting Group estimates that global wealth fell from $104.7 trillion in 2007, measured in individuals' assets under management, to $92.4 trillion in 2008, a decline of 11.7%. It was the first drop since 2001, also a year in which a recession and stock-market freeze occurred at the same time.

Europe had $32.7 trillion in assets under management at the end of last year, down 5.8% from 2007, followed by North America, with $29.3 trillion, a decrease of 21.8%. Latin America, buoyed by a commodities boom, was the only region where wealth increased, by 3%.

Latin America, powered by Brazil, boasts one of the most dynamic economies, as oil, metals, manufacturing and banking enrich a rising middle class. Brazil's stock-market benchmark, the Bovespa, has surged 58% this year, six times the pace of the Dow Jones Industrial Average of the 30 biggest U.S. companies.

Boston Consulting Group's wealth report seems to justify investors' focus on Latin America at the expense of the U.S. Of the Bovespa's 64 member companies, only two have declined this year, and oil giant Petrobras ( PBR) has rocketed 46%. ExxonMobil ( XOM), based in Irving, Texas, has dropped 13%. The best oil find of the past decade was in the Santos Basin of Brazil.

Latin American economies have been more resistant to the global downturn. In the latest reporting period, Brazil's economy contracted 1.2% year-over-year, and Argentina grew 2%. The U.S. economy, in contrast, shrank 3.9%, Canada fell 3.6% and Mexico dropped 10.3%.

In the Boston Consulting Group's report, the number of millionaire households worldwide fell from 11 million to about 9 million, a drop of 17.8 %. The decline was steepest in North America and Europe, at 22% for each. Still, the United States had the most millionaire households, nearly 4 million. Singapore had the highest concentration of millionaires, with 8.5% of the country's households owning more than $1 million in assets. Three of the six densest millionaire populations were in the Middle East (Kuwait, the United Arab Emirates and Qatar).

The massive losses in wealth incurred during the past year's financial turmoil were made worse by a weakened U.S. dollar, bank failures, a credit shortage, job losses and a drop in consumer spending. As a result, a diminished manufacturing base, which, paired with rising fuel costs, shifted U.S. assets to foreign countries.

For its part, Boston Consulting Group uses the report's findings to evaluate the state of the wealth-management industry. Among the 124 institutions in the study, the median pretax-profit margin shrank to 30% in 2008 from 36.4% a year earlier. Performance was hurt by clients shifting their assets to basic, low-margin investments.

Investors' defensive posture will further restrain wealth creation.

"Dazzling product complexity is no longer seen as a positive attribute -- if it ever really was," said Bruce Holley, a Boston Consulting Group senior partner and a co-author of the report. "It is unclear when, and to what extent, assets will migrate back to high-margin investments, but wealth managers cannot count on a strong resurgence of these products in the short term."

-- Reported by Joe Mont in Boston.

If you liked this article you might like

Financial Stocks Make Great Buys After the Recent Market Downdraft

Financial Stocks Make Great Buys After the Recent Market Downdraft

This Is the Perfect Time to Buy Dividend Stocks

This Is the Perfect Time to Buy Dividend Stocks

Citigroup Gives CEO Corbat 48% Pay Raise as Profitability Misses Goal

Citigroup Gives CEO Corbat 48% Pay Raise as Profitability Misses Goal

Worst-In-Class Goldman Sachs CEO Blankfein Gets 9% Pay Raise

Worst-In-Class Goldman Sachs CEO Blankfein Gets 9% Pay Raise

Here's One Hint That S&P 500 Stocks Are a Screaming Buy

Here's One Hint That S&P 500 Stocks Are a Screaming Buy