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Finance

Japan's SMFG to buy 5% stake in Jefferies for $380m

Financial group plans to strengthen securities business in US

SMFG's subsidiary Sumitomo Mitsui Banking Corporation will acquire shares in Jefferies from the market. (Source photos by Reuters/AP)

TOKYO -- Japan's Sumitomo Mitsui Financial Group will invest about 42 billion yen ($380 million) for a stake of roughly 5% in U.S. securities company Jefferies Financial Group, Nikkei learned on Wednesday.

SMFG plans to strengthen its securities business in the U.S., owing to the countries dynamic environment for mergers and acquisitions as well as financing. It will also focus on connecting Japanese companies to overseas counterparts.

Both companies will announce the deal soon. SMFG's subsidiary Sumitomo Mitsui Banking Corporation will acquire Jefferies' shares from the market. 

Founded in 1962, Jefferies is a securities-based financial holding company focused solely on serving corporations. Most of its profits come from investment banking, such as M&A advisory services.

In the fiscal year ended November 2020, Jefferies posted nearly $6.9 billion in sales and $770 million in net income.

According to U.S. research company Dealogic, the company's investment banking unit in the U.S. earned $1.75 billion in 2020, ranking it eighth among the world's financial institutions.

Jefferies has specialized bankers in more than 80 industries, and has a particularly strong presence among midsized companies valued at less than $1 billion and with lower credit compared with larger peers.

In the U.S., corporate restructuring is going strong while financing through the issuance of stocks and bonds is rising as companies respond to changes wrought by the COVID-19 crisis.

The tie-up will see Jefferies sourcing M&A and financing deals in the U.S., while SMBC will provide financing. The duo will also strengthen advisory services for cross-border M&As.

SMBC Nikko Securities, a subsidiary of SMFG, partnered with Jefferies in 2020 for research into U.S. equities. In the investment banking field, the two will also support overseas M&As involving Japanese companies.

SMFG invested in Goldman Sachs in 1986 and in 2008 poured about 106 billion yen into British bank Barclays. SMFG's capital tie-up with Goldman has ended, leaving it with no investments in American financial institutions.

Strengthening corporate businesses such as investment banking in the U.S., which has the world's largest financial market, has been an issue for SMFG.

Japan's domestic market continues to shrink due to low interest rates and a declining population, with few opportunities for profit. This has led SMFG to announce earlier this year measures to strengthen its overseas business. It has decided to invest in or acquire non-banks in Vietnam and India and a bank in the Philippines during the four months from April to July.

Japanese banks provided capital support to U.S. financial institutions during the 2008 Lehman crisis. Mitsubishi UFJ Financial Group invested $9 billion in Morgan Stanley while Mizuho Financial Group acquired preferred stock in Bank of America for about 130 billion yen. Mizuho FG sold all of its shares in 2015.

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