In a blistering report, Jupiter, Fla.-based Weiss Ratings said that 2,376 of the nation's credit unions – 32.1% – are “weak.” Just 736 – roughly 10% – count as “strong.”

Weiss analyst Gene Kirsch said today in an interview, “The industry needs consolidation, big-time. A lot of credit unions are too small to survive.”

He added: “A lot of credit unions are so small they cannot absorb the losses involved in even one bad loan.”

In a prepared statement, Kirsch elaborated: “Many of the nation's credit unions are feeling the effects of the slow economic recovery, combined with the continuing fallout from subprime lending and the nation's weak housing market.”

Asked to comment on the Weiss report, NCUA spokesperson David Small emailed this:

“Looking at the Weiss Ratings for Credit Unions, it is considerably misleading to determine the financial soundness of a credit union by simply looking at public data such as their net worth, asset size or loan delinquencies (if this study even delved that deeply).

“The National Credit Union Administration uses a holistic approach through its CAMEL rating system to determine the soundness of credit unions. Given NCUA's responsibility to protect the safety and soundness of the entire credit union industry and protect the share insurance fund, such a holistic approach is a much more reliable statistic. CAMEL stands for capital adequacy, asset quality, management, earnings and liquidity. Each area combined together creates a balance that determines the credit union's financial soundness. Most of these areas cannot be accessed through public data and a credit union's CAMEL code is not public either.

“With a CAMEL Code of 1 as the most financially sound credit union and 5 as the least, the following statistics reflect a better picture of the credit union industry's financial soundness today than only looking at what Weiss considered. As of June, 381 federally insured credit unions with assets of $39.8 billion and shares of $35.5 billion had CAMEL code 4 or 5 designations. Additionally, 1,775 CAMEL code 3 credit unions had assets of $145.0 billion and shares of $128.7 billion. Overall, approximately 19 percent of all credit union assets were in CAMEL code 3, 4 or 5 institutions. The percentage of assets in CAMEL code 1 and 2 credit unions has increased slightly in each of the past six months.”

And yet – accurate as NCUA's rebuttal may be – the Weiss report may spell trouble for the industry, said credit union consultant Marvin Umholtz:

“Whether or not the statement is true, 'Only 1 in 10 credit unions is financially strong,' is definitely not a headline that anyone in the credit union industry wants to read in a major metropolitan area newspaper,” Umholtz said.

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Report: One in Three Credit Unions Financially 'Weak'