Sumitomo Mitsui Financial Group Inc.’s $3.4 billion bet on its alliance with Jefferies Financial Group Inc. is the latest move by Japan’s top banks to expand abroad as they they seek to work around tepid growth prospects at home.
(Bloomberg) — Sumitomo Mitsui Financial Group Inc.’s $3.4 billion bet on its alliance with Jefferies Financial Group Inc. is the latest move by Japan’s top banks to expand abroad as they they seek to work around tepid growth prospects at home.
The deal realizes an oft-stated desire to own a larger stake in the US investment bank, a move that could give Japan’s second-largest lender a springboard to compete with its domestic rivals.
Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. are already accelerating a buildup in the US market. Mizuho wants to hire bankers to build its businesses with non-investment grade companies and leveraged buyout financing, its chief executive officer said last year.
Meanwhile, MUFG has said it plans to accelerate lending to global funds and other institutional investors in the US, and recently hired more than 20 people from Silicon Valley Bank to build out its technology, media and telecom banking group.
Sumitomo Mitsui ranks 14th this year for underwriting investment grade corporate bonds in the US, lagging Mizuho and MUFG at 9th and 13th respectively. It also ranks behind the other two megabanks in US high-yield bonds this year.
“The move is arguably positive from a business strategy perspective, as alliance synergies can be expected in overseas corporate and investment banking, which is a focus area for SMFG,” Mia Nagasaka, analyst at Morgan Stanley MUFG Securities Co., wrote in a note.
Shares of Sumitomo Mitsui gained as much as 2.8% on Friday in Tokyo, outstripping the benchmark Nikkei 225. Shares of Jefferies surged as much 7% in New York on Thursday, the most since Jan. 4.
Stronger Ties
In an interview earlier this year, Chief Executive Officer Jun Ohta said the partnership with Jefferies can be stronger.
“For (Jefferies), our balance sheet is attractive and for us, their investment banking capability is attractive,” he said.
The Japanese bank, which purchased 4.5% of the outstanding shares of Jefferies in 2021, intends to increase that investment to as high as 15% in economic ownership, the companies said in a joint statement Thursday.
Coupled with financing to Jefferies in 2021, the Japanese company’s commitment to the New York company will amount to $3.4 billion if additional investments are done at the current market prices, according to the US firm.
Tokyo-based Sumitomo Mitsui Banking Corp. will be responsible for credit products and debt-capital markets, while Jefferies will cover mergers and acquisitions as well as equity capital markets, according to the statement.
MUFG, Japan’s biggest bank, invested $9 billion in Morgan Stanley during the global financial crisis in 2008, and now has a 22.7% stake, according to data compiled by Bloomberg. The banks set up two Tokyo-based brokerage ventures in 2010.
“It looks similar to the alliance between MUFG and Morgan Stanley, which has been successful,” said Toyoki Sameshima, an analyst at SBI Securities Co.
–With assistance from Komaki Ito.
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