FINANCIAL TIMES


 

 

New York and Tokyo banks seek deeper ties as they try to compete with larger rivals

Sumitomo Mitsui Banking Corporation is planning to triple its stake in US investment bank Jefferies Financial Group, deepening ties between the Wall Street and Tokyo banks in an effort to compete with larger rivals.

SMBC, Japan’s second-biggest bank, first agreed to take a stake of up to 4.9 per cent in Jefferies in 2021 and now plans to raise its ownership to as much as 15 per cent by acquiring shares on the open market, the two companies said in a statement on Thursday.

The deal is part of a broader collaboration agreement, with Jefferies and SMBC working together to advise and lend to investment-grade companies globally, particularly in the US and Japan.

They have already worked together since 2021 on cross-border mergers and acquisitions as well as leveraged finance.

“This is now the next step, which is a meaningful expansion of where we started a year and a half ago,” Jefferies president Brian Friedman told the Financial Times. Jefferies has had success in recent years gaining market share in midsize mergers and acquisitions, particularly with private equity firms.

With the SMBC partnership, it is trying to build the firepower to provide banking for larger companies, which have historically worked with the likes of Goldman Sachs and JPMorgan Chase. SMBC, whose parent company is Sumitomo Mitsui Financial Group, also committed $2.25bn in financing for Jefferies’s debt underwriting business in 2021.

The total value of this financing, combined with the anticipated value of its stake in Jefferies at current market prices, would put SMBC’s commitment at about $3.4bn.

The expanded partnership comes as investment bankers have been predicting a significant increase in the volume of international dealmaking by Japanese companies, especially in the US.

“There’s no question that one of the many opportunities we and SMBC want to pursue is the opportunity to serve Japanese companies as they expand and pursue strategy, not just in the US but very much in Europe,” Friedman said.

Rising tensions between the US and China mean that Japanese companies are increasingly confident in pursuing acquisitions without the risk of significant competition from Chinese rivals, several investment bankers and lawyers said.

Jefferies, which had been the last independent broker-dealer of significant size on Wall Street, was bought out by investment group Leucadia in 2012 to form a financial conglomerate with holdings ranging from beef packagers to car dealerships.

The merged company was rebranded in 2018 as Jefferies Financial Group and has been paring back its other investments to focus on investment banking, including advisory work on mergers and acquisitions, and debt and equity underwriting.

Under the leadership of chief executive Rich Handler and Friedman, Jefferies has grown in recent years, hiring other bankers and capitalising on weaknesses at peers such as Credit Suisse to gain market share.