Japan’s Sumitomo Mitsui Financial Group (SMFG) is exploring the possibility of acquiring U.S. investment bank Jefferies, as the Japanese lender evaluates opportunities to expand its global investment banking presence.(FT)
According to individuals familiar with the matter, SMFG has assembled a small internal team to prepare for a potential transaction should market conditions make a takeover more feasible. The move comes as Jefferies’ share price has declined significantly in recent months, prompting speculation that the Wall Street firm could become a takeover target. However, people close to the discussions caution that no deal is imminent and that several obstacles could complicate any potential acquisition.
SMFG already maintains a relationship with Jefferies through its banking subsidiary, Sumitomo Mitsui Banking Corporation (SMBC), which holds a minority stake in the U.S. investment bank. The Japanese group initially acquired a 5 percent stake in Jefferies in 2021 and agreed in September to increase its position to as much as 20 percent. Despite this expanded investment, SMFG’s voting interest remains below 5 percent to avoid regulatory consequences associated with crossing that threshold.
Jefferies’ shares have fallen by roughly 40 percent since September, amid investor concerns linked to its exposure to the collapsed auto-parts group First Brands and broader questions about underwriting standards. The decline has reduced Jefferies’ market capitalisation to approximately $8 billion. By comparison, SMFG’s market value stands at nearly ¥20 trillion (about $125 billion), highlighting the relative scale difference between the two institutions.
For SMFG, gaining control of a major U.S. investment bank could represent a significant step in its long-term strategy to strengthen its global capital markets capabilities. The group has previously sought to expand its international investment banking reach through acquisitions and partnerships, including the purchase of securities firm Nikko from Citigroup in 2009 and a strategic alliance with boutique advisory firm Moelis & Company in 2011.
A combination with Jefferies could help SMFG bolster capabilities in areas where it has historically sought greater expertise, particularly equity capital markets and cross-border mergers and acquisitions. Industry observers note that access to a well-established Wall Street platform could significantly enhance the Japanese bank’s ability to compete with global investment banking leaders.
However, a potential takeover would face a number of challenges. Regulatory hurdles could arise given the cross-border nature of the transaction and the significance of both institutions in their respective markets. Cultural differences may also complicate integration efforts. SMFG is widely regarded as a conservative Japanese financial institution, while Jefferies has built a reputation as one of Wall Street’s more aggressive investment banks.
Some executives within SMFG have reportedly expressed concerns that such differences could create tensions within the organisation, particularly among bankers at SMBC and its securities arm, SMBC Nikko.
Despite these challenges, the two firms have continued to deepen their cooperation. SMFG and Jefferies recently agreed to establish an equities joint venture in Japan alongside SMBC Nikko. The Japanese lender is reportedly treating the initiative as both a test of operational integration and an opportunity to conduct practical due diligence on closer collaboration.
Senior Jefferies executives, including chief executive Rich Handler and president Brian Friedman, are expected to visit Tokyo this week as part of efforts to strengthen ties between the institutions. The U.S. bank is also scheduled to hold a board meeting in Japan.
Any eventual transaction would depend not only on regulatory approvals and market conditions but also on the willingness of Jefferies’ leadership and shareholders to pursue a sale. Several senior executives at the firm, including Handler, Friedman and chair Joe Steinberg, hold substantial equity stakes, which could influence their position on a potential takeover.
SMFG is not the only Japanese financial group seeking to expand its global investment banking capabilities. Rival megabank Mitsubishi UFJ Financial Group (MUFG) established a major international partnership with Morgan Stanley during the 2008 financial crisis, gaining access to global deal flow while strengthening its position in Japan’s capital markets. Meanwhile, Mizuho Financial Group has also pursued overseas expansion, acquiring U.S. advisory boutique Greenhill in 2023.
Despite these precedents, Japanese financial institutions have historically experienced mixed outcomes from large cross-border acquisitions. Past transactions have sometimes encountered integration challenges, leading to caution within the sector.
People familiar with SMFG’s thinking say the bank is prepared to wait for more favourable conditions if a full takeover of Jefferies proves difficult in the near term. For now, the lender appears focused on maintaining flexibility while continuing to build its strategic relationship with the U.S. investment bank.
