Jefferies is repeatedly embroiled in private credit blowups, and Japan's Sumitomo Mitsui seeks to acquire it amid the turmoil.

```

Jefferies is caught in the whirlpool of multiple crises—its stock price continues to plunge, and its private credit risk exposures are repeatedly revealed—which precisely presents a potential strategic window for Japan’s second largest bank, Sumitomo Mitsui Financial Group (SMFG).

According to a report by the Financial Times on Tuesday, SMFG has formed a special task force to prepare for a possible acquisition of Jefferies, ready to act swiftly once the latter’s stock price drops further into the appropriate range.

The MFS incident is yet another private credit risk event involving Jefferies, following the bankruptcy of US auto parts supplier First Brands Group and subprime auto lender Tricolor Holdings, deepening market doubts about its underwriting standards.

After the acquisition news was released, Jefferies’ European shares rose 11%. Since September last year, Jefferies’ stock price has fallen by about 40%, shrinking its market value to around $8 billion.

MFS’s bankruptcy exposes over £2 billion in risk

According to Bloomberg, MFS has entered the UK bankruptcy administration process. The presiding judge cited fraud allegations and asset double-pledging issues; two of the company’s subsidiaries disclosed in court filings "serious misconduct" and "significant shortfalls" in collateral.

Specifically, the combined funding shortfall for the two subsidiaries may reach up to £238 million; meanwhile, the company is suspected of having diverted “most or all” of certain transaction income since December last year, with the whereabouts of the funds still unknown.

This incident has left Jefferies, Barclays, and Apollo’s Atlas SP Partners with a combined risk exposure exceeding £2 billion, striking a vulnerable nerve in the private credit market. JPMorgan CEO Jamie Dimon warned this week that the current market reminds him of pre-2008 financial crisis conditions and bluntly stated that some competitors are "doing stupid things."

Stock price plunges, SMFG positions itself for acquisition

The ongoing decline in Jefferies’ stock price is turning it into a potential acquisition target in the eyes of SMFG. According to informed sources, SMFG has formed a small special team to ensure swift action when conditions are right.

SMFG’s positioning for Jefferies has continued for five years. The group first acquired a 5% stake in Jefferies in 2021 and agreed last September to increase its holdings up to a maximum of 20%. Currently, SMFG’s actual voting rights remain below 5% to avoid triggering regulatory thresholds.

Sources say that senior management at SMFG believe Jefferies CEO Rich Handler, President Brian Friedman, and Chairman Joe Steinberg, all core executives, hold substantial shares and will ultimately seek an exit, with SMFG being the most likely buyer.

Despite clear strategic intent, significant obstacles remain for this potential acquisition. Sources warn that any substantial action is not imminent, and it is uncertain whether Jefferies management would be willing to sell during a time of stock price weakness. Internal divisions also exist within SMFG, with some executives concerned that an acquisition could alienate SMBC’s domestic banking teams in Japan and trigger cultural clashes. Senior bankers at SMFG and SMBC admit that integrating the conservative culture of Japanese institutions with Jefferies’ aggressive investment banking culture would be a daunting challenge.

Modeling after MUFG-Morgan Stanley, Japanese banks accelerate global expansion

SMFG’s acquisition ambitions reflect the overall strategic direction of major Japanese banks pursuing global investment banking status. SMFG hopes to replicate the partnership model between competitor Mitsubishi UFJ Financial Group (MUFG) and Morgan Stanley—formed during the 2008 global financial crisis through bailout funding—which combined a blue-chip Wall Street brand with a Japanese megabank balance sheet, giving MUFG a leading position in Tokyo and a global flow of financing and M&A transactions.

Sources said that controlling the Jefferies Wall Street brand is a core strategic pillar for SMFG’s entry into the ranks of top global investment banks. The group already expanded globally through its acquisition of Nikko Securities from Citigroup in 2009 and a partnership with boutique bank Moelis in 2011.

Japan’s third-largest bank, Mizuho Financial Group, is also accelerating international expansion, acquiring US boutique investment bank Greenhill for $550 million in 2023. However, the history of Japanese bank mergers is not always smooth, as Nomura’s acquisition of Lehman Brothers’ Asian and European assets still serves as a cautionary tale.

Risk Warning and DisclaimerMarkets are risky; invest prudently. This article does not constitute personal investment advice and has not taken into account any individual user's specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Invest at your own risk. ```