Japan’s SMFG to Invest Over $810 Million in Jefferies

Japan’s Sumitomo Mitsui Financial Group (SMFG) is set to invest more than $810 million in the US-based investment bank Jefferies Financial Group, raising its stake from 14.5% to 20%, and latter has reportedly agreed to the modified proposal.

According to media reports, the two companies will establish a joint venture in Japan to provide advisory services for mergers and acquisitions, as well as fundraising support. The move will also involve a restructuring of SMFG’s securities business.

A report in Nikkei Asia said that this will be the first restructuring to SMFG’s securities business in about eight years, when it merged with SMBC Nikko Securities and SMBC Friend Securities in 2018. A cross-group restructuring has not occurred since SMFG acquired Nikko Cordial Securities, now SMBC Nikko, from Citigroup in 2009, roughly 17 years ago.

Japanese companies have become increasingly active buyers, with mergers & acquisitions (M&A) in the January-to-June period reaching a record high. Corporate restructuring to boost capital efficiency and overseas growth investments are set to further expand.

The report said that SMFG needs to strengthen its corporate securities business — including its M&A advisory services and underwriting of equities and bonds — to achieve its goal of becoming the top among Japan’s largest three banks in major corporate transactions.

SMFG will acquire additional non-voting preferred shares in Jefferies. The two began their business tie-up in 2021. The additional investment will accelerate the development of SMFG’s cross-border M&A advisory and other services.

If the deal receives approval from antitrust authorities, SMBC Nikko will hold a majority stake in a new Japan-based joint venture, with Jefferies owning the remainder. The joint venture will execute the tie-up’s M&A advisory and corporate equity issuance services.

SMFG also aims to close the gap with rival Nomura Securities in M&A advisory and equity underwriting services by leveraging this joint venture with its group-wide resources. SMBC Nikko will continue to handle corporate transactions while also handling wealth management business linked to corporate clients.

Extending Credit Lines to Jefferies

In the US, Sumitomo Mitsui Banking is considering extending credit lines worth several billion dollars to Jefferies. Globally, including in Europe, the Middle East and Africa, SMFG and SMBC Nikko plan to deepen collaboration with Jefferies in providing M&A and fundraising proposals to investment funds such as KKR and Bain Capital.

Founded in 1962, Jefferies is a financial holding company centered on its securities business, with particular strengths in M&A advisory services and lending to lower-rated companies. SMFG first announced an investment into the company of up to 4.9% in 2021, and then in 2023 it raised its stake to about 15%.

With the Bank of Japan ending its negative interest rates and Japanese interest rates rising, SMFG has been quick to capture retail deposit and asset management demand through its comprehensive financial services brand, Olive. However, it has lagged behind Mitsubishi UFJ Financial Group and Mizuho Financial Group in services such as lending to large companies, the report said.

Japan’s top three banks have been strengthening their M&A advisory services by partnering with North American financial institutions.

Mitsubishi UFJ FG works with Morgan Stanley, and Mizuho FG acquired the US investment bank Greenhill in 2023. With SMFG and Jefferies expanding their partnership, Japan’s main banks will now enter the full-fledged competition in the US, the world’s largest M&A market, the report said.