RPT-BREAKINGVIEWS-Longer Jefferies courtship would benefit Sumitomo

By Jeffrey Goldfarb and Una Galani

NEW YORK, March 24 (Reuters Breakingviews) - If Sumitomo Mitsui Financial 8316.T wants to go deeper into the United States, Motown would be a better place to start than Wall Street. The renowned Detroit record label issued The Supremes’ chart-topper “You Can’t Hurry Love,” sound advice as Japan’s second-biggest lender considers buying its $8 billion U.S. investment banking partner Jefferies Financial JEF.N.

Like many of its compatriots, $124 billion Sumitomo Mitsui harbors ambitions of becoming more international and sees the surest route through an overseas financial institution. Rival Mitsubishi UFJ Financial, or MUFG, accomplished the feat by injecting $9 billion into Morgan Stanley at the height of the global financial crisis in 2008, the same year that Nomura bought the European business of collapsed Lehman Brothers. Mizuho Financial acquired advisory boutique Greenhill in 2023. For Sumitomo, Jefferies represents a long-belated consolation prize after it backed Goldman Sachs four decades ago, but later had to offload its holding to raise cash.

Sumitomo bought 5% of Jefferies in 2021 and struck a deal last year to increase its economic stake to 20%, extend $2.5 billion of credit and establish an equities joint venture in Japan. It’s working on a potential takeover of the rest, the Financial Times reported on Tuesday, citing unnamed sources. Sumitomo has no immediate plan to do so, however, according to Bloomberg, and the shop led by Rich Handler doesn’t want to sell, per CNBC.

The partnership holds promise. Sumitomo is opening doors in Japan for Jefferies, while gaining more opportunities to deploy its balance sheet and an advanced education in the finer points of U.S.-style stock trading, debt underwriting and wealth management. At some point, Handler and his lieutenants will want to find their way to the exit.

It’s too soon for a full-blown merger, however. For one thing, there’s no rush to throw together buttoned-up Japanese bankers with their ruthless U.S. counterparts. Jefferies is also mired in fallout from its exposure to auto-parts manufacturer First Brands and other credit blowups, which raised fresh questions about its opaque off-balance-sheet holdings. It’s trading at just 10 times forecast 2026 earnings and 70% of expected book value, according to estimates gathered by Visible Alpha, both of which are discounts to Wall Street peers.

The only potentially good reason to speed up the timetable would be if Jefferies needed extra capital, and there’s no obvious indication it does for now. In which case, a longer courtship would serve Sumitomo well. As the Supremes sang, it's a game of give and take.

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CONTEXT NEWS

Sumitomo Mitsui Financial Group is working on plans to take over its U.S. investment banking partner Jefferies Financial, the Financial Times reported on March 24, citing unnamed sources.

Both companies declined to comment. Following the article’s publication, Bloomberg reported that Sumitomo had no immediate plans for such a deal while CNBC reported that Jefferies was not interested in selling, with both news organizations also citing anonymous sources.

Sumitomo bought 5% of Jefferies in 2021 and struck a deal to boost its economic stake to 20% in September 2025.

Jefferies shares were up 2% at $40.32 as of 1500 GMT on March 24.