Sumitomo Mitsui Mulls Widening Jefferies Pact to Catch Rivals - Hindustan Times
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Sumitomo Mitsui Mulls Widening Jefferies Pact to Catch Rivals

Bloomberg |
Feb 26, 2024 02:31 PM IST

Sumitomo Mitsui Financial Group Inc.’s Chief Executive Officer said he is considering an expansion of the bank’s alliance with Jefferies Financial Group Inc. into Asia as he plays catch-up with Japanese rivals who moved more rapidly to build out their investment banking overseas.

(Bloomberg) -- Sumitomo Mitsui Financial Group Inc.’s Chief Executive Officer said he is considering an expansion of the bank’s alliance with Jefferies Financial Group Inc. into Asia as he plays catch-up with Japanese rivals who moved more rapidly to build out their investment banking overseas.

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The partners won more than 30 deals in bond and equity underwriting since they announced an expanded tie-up in April last year, Toru Nakashima, who took took the reins following the death of Jun Ohta in November, said in an interview in Tokyo. That move saw Japan’s second-largest lender agree to triple its stake in the US investment bank.

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“It’s a faster pace than we had expected, it is going very well,” said the Sumitomo Mitsui veteran, who helped orchestrate the Jefferies stake increase under Ohta. After announcing last month that the pact will extend to Europe, the Middle East and Africa, Nakashima said Asia will be the next target. “If we do well in Europe, our discussion will naturally be, how about Asia?” he said, without elaborating.

Japan’s three top banks, with a combined market capitalization of about $245 billion, have sought to build out revenues from deals to underwriting in the US, either by hiring from banks like Credit Suisse that are scaling back, acquiring stakes or purchasing boutiques outright. 

Last year, Mizuho Financial Group Inc. acquired New York-based investment bank Greenhill & Co. in a $550 million deal to offer more advice on global mergers, and more recently said it plans to dramatically ramp up its expansion into private markets. Japan’s largest lender, Mitsubishi UFJ Financial Group Inc. invested $9 billion in Morgan Stanley at the height of the financial crisis in 2008, acquiring a 20% stake.

Nakashima said his bank had not been able to take advantage of relationships with US corporate clients due to weakness in equity underwriting. In the alliance, which seeks to fix that, the Japanese bank brings its balance sheet and debt capital markets expertise while Jefferies adds M&A advisory and equity financing services.

‘Big Gap’

In the US, Nakashima said his bank has been lagging behind Mizuho, which has been steadily expanding its Wall Street ambitions in recent years. 

“There is still a big gap. We are doing the collaboration with Jefferies in order to fill that gap,” he said. “In proportion to the number of clients, our investment banking fees have been very small,” he said. 

So far this year, the alliance appears to be benefiting both partners. Jefferies ranks fifth in US equity offerings, climbing eight places from the same period a year earlier, according to data compiled by Bloomberg. Sumitomo Mitsui ranks 12th in US investment grade corporate bonds this year, rising two spots.

As part of the deeper ties between the two, Sumitomo Mitsui agreed to increase its economic ownership in Jefferies to as much as 15%, pending the blessing of regulators. So far, it has risen to about 9%, Nakashima said in the interview. The bank did not provide further details on the status of approvals. 

Read More: Sumitomo Mitsui CEO Ohta, Who Pushed Asia Growth, Dies at 65 (3)

Asked whether Sumitomo Mitsui has any intention to raise its stake beyond 15%, Nakashima said nothing is decided at this moment. 

Asia Ambitions

Nakashima, 60, joined the lender’s predecessor in 1986 and had long been seen as Ohta’s heir apparent. 

Under Ohta, Sumitomo Mitsui made acquisitions in Asia, investing billions of dollars as growth opportunities at home dwindled due to the country’s slow economic expansion and bouts of deflation.

The new boss plans to build on that expansion, saying his bank just made an opening gambit even after spending more than 500 billion yen ($3.3 billion) on deals across the region in the past three years. 

He said the bank is looking for acquisitions in Indonesia, India, Vietnam, and the Philippines, where it aims to build full-service financial conglomerates to tap the expanding middle class. 

Asset management is another business Sumitomo Mitsui is trying to scale up, but Nakashima said he is cautious about acquisitions right now, citing the hefty price tags such companies command.

“Investors told me not to buy asset management companies,” at this time, he said, referring to discussions on a recent investor relations tour.

“They said ‘it’s not the time. Take our word for it, since we, asset management companies, are saying so.’” 

--With assistance from Manuel Baigorri.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.

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