A new report from financial services consultancy SNL Financialargues that mergers among credit unions of more than $500 millionin assets are being stymied by a lack of strategic thinking.

The report, titled Credit Union Mergers Remain More Desperate Than Strategic,contends that the majority of mergers happen only amongsmaller credit unions and are done to prevent failure rather thanby larger credit unions seeking to maximize a strategic position inthe marketplace.

“The nation's credit unions continue to grapple with squeezednet interest margins, low loan demand and amplified regulatoryburdens,” the consultancy wrote.

“But consolidation activity remains concentrated among the mostpopulated sector containing the smallest institutions — with assetsof less than $500 million — and are motivated more by financialdistress and avoiding failure than strategy and long-termplanning,” the report said.

SNL said it drew its conclusions after interviews with “industryobservers” and executives who said they would like to merge butcan't find a partner.

The report blames credit unions' not-for-profit status and lackof investors for the alleged inefficient stance towards merging,arguing that mergers happen in for-profit banks and thrifts becauseinvestors in those institutions push boards of directors tomaximize institutional value for them.

“Average, weak and marginal credit unions continue to existbecause their boards are not held accountable and are uninterestedin pursuing opportunities that may offer members access to moreservices or better rates,” the consultancy reported as some of theobservations of Peter Duffy, managingdirector at investment banking firm Sandler O'Neill.

Sandler O'Neill led the industry in the number of financialmergers and acquisitions (51) that it facilitated or otherwiseconsulted on in 2012, according to the firm's website. Thefirm also assists in the conversions of credit unions to mutualthrifts and mutual thrifts to stock-issuing banks.

The report quoted Henry Wirz, CEO ofthe 165,000-member, $1.9 billion SAFE Credit Union in NorthHighlands, Calif., as an example of a credit union executive thatwould like to see his credit union merge with another but who hasbeen unable to find a partner.

SNL reported that Wirz would like to SAFE become a $3-5 billioncredit union but has been unable to find a partner to do so.

“The hurdle is to find the right kind of incentives formanagement and the board, and those are hard to come by because thepeople that control the credit union have to be willing to give upsome control,” the consultancy quoted him as saying, adding, “Whatwe have today is an irrational merger and consolidation process incredit unions. It's bad for the whole system the way we're doingit.”

The report also reported the views of Charles McQueen, presidentof McQueen Financial Advisors, discussing the phenomenon of federalcredit unions merging with state-chartered credit unions and thentaking the state charter.

“State charters generally have the potential for a moreexpansive field of membership, causing some federal credit unionsto merge and then replace its federal charter with the statecharter to grow their membership base, even if the federalinstitution was larger before the merger,” SNL reported.