Jefferies (JEF) Deepens Strategic Alliance With SMBC in Canada

Jefferies Financial Group Inc. JEF announced a deepening of its global strategic alliance with Japan-based SMBC Group. This initiative focuses on enhancing cooperation within the Canadian market regarding corporate and investment banking business opportunities. This move aligns with the trend of U.S. investment banks increasing their efforts in Canada to gain a competitive edge.

SMBC Group consists of Sumitomo Mitsui Financial Group, Inc. SMFG, Sumitomo Mitsui Banking Corporation (“SMBC”), SMBC Nikko Securities America, Inc., SMBC Nikko Securities Canada, Ltd. and other group companies.

This February, Bloomberg reported SMFG’s plans to expand its alliance with JEF. SMFG’s new CEO, Toru Nakashima, was mulling to further widen the bank’s alliance with JEF into Asia in an effort to compete with its Japan rivals, who have been moving rapidly to build out their investment banking overseas, per the report.

In December 2023, JEF announced the establishment of full-service investment banking and capital markets capabilities within the Canadian market, launching a new office staffed with more than 40 professionals with specialization across equity research, investment banking and sales and trading in all sectors.

Jefferies’ strategic alliance with SMBC Group started in 2021, primarily driven by a focus on U.S. leveraged finance and M&A across borders in Japan. Last year, the partnership expanded its reach in the U.S. markets to strengthen the scope of collaboration in mergers and acquisitions (M&A) advisory services, extended cooperation across the firms’ equities and debt capital markets businesses, and launched a joint coverage model for designated investment-grade clients. Further, in January 2024, the alliance was further deepened through an extension to cover Europe, the Middle East and Africa regions.

As part of the initial strategic alliance, SMBC financed JEF with $2.25 billion and purchased almost 4.5% of the outstanding common shares of Jefferies. In April 2023, the alliance was further strengthened, with SMBC announcing its plans to boost its economic ownership to up to 15%, including convertible and dilutive securities, thus becoming one of the largest shareholders in Jefferies.

Bruce Rothney, CEO of Jefferies Canada, said, “In just the first few months since opening Jefferies’ new Canada office, we have already witnessed the benefits that the Jefferies-SMBC strategic alliance will bring to our valued clients. SMBC’s capital base and world-class capabilities will enable us to jointly offer comprehensive, full-service solutions to our clients in Canada.”

Jefferies will combine its extensive industry, M&A, leveraged finance and equity capital markets expertise with SMBC’s debt capital and deep banking competence and robust balance sheet to cater to the client needs.

Over the past six months, JEF shares have gained 23.8% compared with the industry’s 25.3% growth.