Can Jefferies deal help SMBC replicate Morgan Stanley-MUFG swagger?

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13 July, 2021
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Euromoney, July 15 2021

Two years of international expansion have concluded with a partnership and shareholding deal between Sumitomo Mitsui and Jefferies. There’s a clear role model for US-Japan tie-ups in New York investment banking. Can this new partnership follow it?

Just weeks after taking control of Fullerton India Credit, Sumitomo Mitsui Financial Group has shown a further example of its international ambitions by taking a stake in Jefferies and striking a strategic alliance with the US-based investment bank.

Sumitomo Mitsui – known at the group level as SMBC, though more commonly referred to by analysts as SMFG – will take a 4.9% stake in the firm, worth $386 million, based on the Jefferies closing price of July 13.

An announcement on July 14 said the alliance was “to collaborate on future corporate and investment banking business opportunities”. The statement specifically mentions US leveraged finance, cross-border M&A involving Japanese companies, and US healthcare.

The heart of the idea is to combine SMBC’s balance sheet and Jefferies’ international reach in investment banking.

This is not just a conceptual ambition: the announcement comes with a $1.65 billion revolving credit facility and $250 million subordinated loan from SMBC to the leveraged finance underwriting affiliate of Jefferies, as well as an additional $350 million revolving credit facility to Jefferies more broadly.

The two institutions have a relationship going back at least 10 years, particularly in equity trading in Japan and the US. The credit line reflects SMBC’s trust that Jefferies can do a lot more with that money than SMBC itself can.

From the Japanese lender’s perspective, it is starting to look more and more like rival Mitsubishi UFJ Financial Group (MUFG). We commented following the Fullerton India deal that SMBC had now successfully rolled out chief executive Jun Ohta’s plan to gain exposure to high-growth Asian economies in Vietnam, the Philippines in India, with stakes in FE Credit, RCBC and Fullerton India Credit respectively, in an effort to combat low-to-negative growth at home.

Taking on New York, though, is something new.

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Chris Wright
Chris Wright
Chris is a journalist specialising in business and financial journalism across Asia, Australia and the Middle East. He is Asia editor for Euromoney magazine and has written for publications including the Financial Times, Institutional Investor, Forbes, Asiamoney, the Australian Financial Review, Discovery Channel Magazine, Qantas: The Australian Way and BRW. He is the author of No More Worlds to Conquer, published by HarperCollins.

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