The CEO of Sumitomo Mitsui Financial Group has expressed interest in extending the bank's collaboration with Jefferies Financial Group into Asia, aiming to close the gap with Japanese competitors who have advanced more swiftly in expanding their investment banking presence abroad. Since announcing an enhanced partnership in April of the previous year, the two entities have secured over 30 deals in bond and equity underwriting, as noted by Toru Nakashima, who assumed leadership following the passing of Jun Ohta in November. In April, Japan's second-largest lender agreed to triple its ownership stake in the American investment bank.
"It's a faster pace than we had expected it is going very well", the Sumitomo Mitsui veteran said in an interview in Tokyo. Nakashima played a key role in facilitating the expansion of the stake in Jefferies during Ohta's tenure. Following the recent announcement that the agreement would now encompass Europe, the Middle East, and Africa, he indicated that Asia would be the subsequent focus area.
Japan's three top banks, with a combined market capitalization of about $245 billion (¥36.9 trillion), have sought to build out revenues from deals to underwriting in the U.S., either by hiring from banks like Credit Suisse that are scaling back, acquiring stakes or purchasing boutiques outright. Last year Mizuho Financial Group acquired New York-based investment bank Greenhill & Co. in a $550 million deal to offer more advice on global mergers. More recently, Mizuho said it plans to ramp up its private market expansion dramatically. Japan's largest lender, Mitsubishi UFJ Financial Group, invested $9 billion in Morgan Stanley at the height of the financial crisis in 2008, acquiring a 20% stake.
Nakashima acknowledged that his bank had been unable to leverage its connections with U.S. corporate clients effectively, primarily due to shortcomings in equity underwriting. Through the alliance, aimed at addressing this issue, the Japanese bank contributes its balance sheet and expertise in debt capital markets, while Jefferies provides M&A advisory and equity financing services. Nakashima noted that in the U.S., his bank has been trailing behind Mizuho, which has been steadily advancing its ambitions on Wall Street in recent years.
Thus far in the current year, it seems that the alliance is proving advantageous for both parties. According to data, Jefferies has risen to fifth place in U.S. equity offerings, marking an increase of eight positions compared to the corresponding period last year. Sumitomo Mitsui has also experienced progress, moving up two spots to rank 12th in U.S. investment-grade corporate bonds. As a component of their strengthened relationship, Sumitomo Mitsui has agreed to potentially raise its economic stake in Jefferies to a maximum of 15%, pending regulatory approval.
Nakashima joined the predecessor of the bank in 1986 and had long been regarded as the likely successor to Ohta. Sumitomo Mitsui pursued acquisitions in Asia, investing billions of dollars as domestic growth opportunities dwindled amidst Japan's sluggish economic expansion and periods of deflation. The new CEO intends to capitalize on this expansion, stating that despite spending over ¥500 billion ($3.3 billion) on deals across the region in the past three years. He indicated that the bank is actively seeking acquisitions in Indonesia, India, Vietnam, and the Philippines, with the objective of establishing full-service financial conglomerates to cater to the expanding middle class.