Japan's SMFG is considering a takeover of Jefferies

By Nora Redmond

Shares in Jefferies have fallen almost 40% since the start of the year.

Sumitomo Mitsui Financial Group, the second-largest bank in Japan, is reportedly working toward a takeover of Jefferies.

The Financial Times reported that a small group within SMFG (SMFG) is preparing to act if Jefferies's share price (JEF) continues to fall, presenting an opportunity for a move by the Tokyo-headquartered lender, according to people with knowledge of the situation.

Sumitomo Mitsui Banking Corp., SMFG's primary subsidiary, is the third-biggest shareholder in Jefferies, with a 4.5% stake. BlackRock Fund Advisors and Vanguard are the largest and second-largest stakeholders, with stakes of almost 7% and 6.5%, respectively, per FactSet data.

The people who spoke to the FT said a takeover is not certain or immediate. It is also possible that executives at Jefferies may not want to sell when shares drop.

Jefferies's stock rose just over 8% in premarket trading following the release of the report. The financial group, valued at about $8 billion, has struggled since the start of the year, with share prices down close to 40%.

The bank has faced growing scrutiny in recent months regarding its lending capabilities amid worries about its exposure to private-equity loans, especially from First Brands and British lender Market Financial Solutions, which have both collapsed.

SMFG has a market capitalization of about $120 billion, according to FactSet. Its shares are down 0.2% since the report's publication.

The senior figures told the paper that taking over Jefferies is a core part of SMFG's intention to increase competition with Wall Street's top investment banks.

"Jefferies is our important partner," SMFG told the Financial Times. "We decline to comment on hypothetical assumptions or rumours."

SMFG and Jefferies did not respond to MarketWatch's request for comment.

-Nora Redmond

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