In a blistering report, Jupiter, Fla.-based Weiss Ratings saidthat 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, “Theindustry needs consolidation, big-time. A lot of creditunions are too small to survive.”

He added: “A lot of credit unions are so small they cannotabsorb the losses involved in even one bad loan.”

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

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

“Looking at the Weiss Ratings for Credit Unions, it isconsiderably misleading to determine the financial soundness of acredit union by simply looking at public data such as their networth, asset size or loan delinquencies (if this study even delvedthat deeply).

“The National Credit Union Administration uses a holisticapproach through its CAMEL rating system to determine the soundnessof credit unions. Given NCUA's responsibility to protect the safetyand soundness of the entire credit union industry and protect theshare insurance fund, such a holistic approach is a much morereliable statistic. CAMEL stands for capital adequacy, assetquality, management, earnings and liquidity. Each area combinedtogether creates a balance that determines the credit union'sfinancial soundness. Most of these areas cannot be accessed throughpublic data and a credit union's CAMEL code is not publiceither.

“With a CAMEL Code of 1 as the most financially sound creditunion and 5 as the least, the following statistics reflect a betterpicture of the credit union industry's financial soundness todaythan 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 5designations. Additionally, 1,775 CAMEL code 3 credit unions hadassets of $145.0 billion and shares of $128.7 billion. Overall,approximately 19 percent of all credit union assets were in CAMELcode 3, 4 or 5 institutions. The percentage of assets in CAMEL code1 and 2 credit unions has increased slightly in each of the pastsix months.”

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

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