SMBC raises stake in Jefferies to up to 20% with $912 million investment

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By Anton Bridge

(Reuters) – Japan’s Sumitomo Mitsui Banking Corp, the banking arm of Sumitomo Mitsui Financial Group, will invest a further 135 billion yen ($912.84 million) in U.S. investment bank Jefferies, the companies said in a statement on Friday.

The move deepens the firms’ alliance, which dates from 2021, and comes after SMBC raised its holding in India’s Yes Bank this week, as it and other Japanese institutions seek out opportunities overseas.

The investment will take SMBC’s stake to up to 20% from 14.5%. The two companies will also set up a joint venture in Japan to consolidate their wholesale Japanese equities businesses, the statement said.

The new entity will oversee the firms’ equity capital markets operations, research and sales and trading from a target launch date of January 2027.

As the Japanese stock market is booming with larger deal sizes, more global deals and increased capital flows from overseas, the alliance with Jefferies will allow SMFG’s securities arm – SMBC Nikko – to better meet issuer and investor demand, SMBC Executive Officer Takashi Morita told a press briefing.

STAKE EXPECTED TO BOOST PROFIT BY FIFTH YEAR

The bank estimates the Jefferies stake will contribute 50 billion yen to profit by the fifth year, of which 10 billion yen would come from the equity joint venture.

“SMBC Nikko may be able to get more inbound M&A interest from U.S. financial firms where it may not have the trusted relationships in the U.S. that Jefferies does,” said Travis Lundy, an analyst who publishes on Smartkarma.

“More perhaps it gets SMBC a potentially much better seat at the table for providing LBO financing,” Lundy added.

SMBC will provide Jefferies with $2.5 billion of new credit facilities to be used for leveraged lending in EMEA and pre-listing lending in the United States, the statement added.

SMFG, Japan’s second largest banking group, started working with Jefferies in 2021 on cross-border mergers and acquisitions and leveraged finance. It first took a stake in 2023, and has since raised it multiple times.

Nothing has been decided with regard to further investment in the future, SMBC’s Morita said.

SMBC is not the only Japanese bank to secure a foothold in the U.S.

Larger rival Mitsubishi UFJ Financial Group invested in Morgan Stanley in 2008 and currently holds a 23.62% shareholding, while number three player Mizuho Financial Group acquired U.S. M&A advisory Greenhill in 2023.

(Reporting by Gnaneshwar Rajan in Bengaluru, Anton Bridge in Tokyo and Kane Wu in Hong Kong; Editing by Kirsten Donovan and Sharon Singleton)