Wall Street Shake-Up? Japan’s SMFG Eyes Bigger Slice of Jefferies in $677M Power Move

This article first appeared on GuruFocus.

Jefferies Financial Group (NYSE:JEF) surged as much as 6% to $70.50 on Thursday, its highest intraday level since February, after Bloomberg reported that Sumitomo Mitsui Financial Group is exploring a deeper investment. People familiar with the talks said the Japanese bank, which already owns about 15% of Jefferies, is considering lifting its stake to around 20% through a preferred stock purchase valued at more than 100 billion ($677 million). While details remain under negotiation, the potential move would reinforce the capital and business alliance formed in 2021, a partnership CEO Toru Nakashima has said he is keen to expand into equities.

One proposal under review involves merging parts of their equities businesses in Japan, with SMBC Nikko Securities and Jefferies’ Tokyo arm weighing a joint venture. Jefferies’ local operation, with roughly 90 employees, has delivered double-digit revenue growth but saw profits fall 40% last year as expenses climbed. For SMBC Nikko, still recovering from a 2022 market manipulation scandal that led to criminal convictions and damaged credibility, collaboration could help accelerate its rebuild. The firm has made senior hires this year and restarted block trading, the very business at the heart of the probe.

The potential stake increase underscores a broader trend of Japan’s megabanks forging closer ties with US investment firms to capture more global deal flow. Mizuho’s $550 million acquisition of Greenhill in 2023 and MUFG’s longstanding Morgan Stanley alliance reflect this strategy. For Sumitomo Mitsui, momentum could be shifting in its favor after US regulators lifted enforcement actions tied to money-laundering controls at its New York branch earlier this month. The outcome of the Jefferies talks remains uncertain, but investors are betting the tie-up could expand well beyond Tokyo into Asia-Pacific and other growth markets.