Wonderful News From the Land of the Rising Sun

Dear Clients, Jefferies Employee-Partners, and Friends,

Today is another great day for all of us at Jefferies.  We announced a significant expansion of our Strategic Alliance with Sumitomo Mitsui Banking Corporation (SMBC), one of the most important banks in Japan and one of the largest in the world.  We began our formal relationship with SMBC almost two years ago and, despite some starts and stops due to Covid, it has become clear that there are many significant and smart ways for us to work together to serve our respective clients.  Today, we have announced that we intend over time to partner with SMBC to leverage their strong balance sheet and global capabilities to help generate incremental M&A, Leveraged Finance and Equity Capital Markets business together.  We anticipate a methodical and targeted approach to make sure we can offer even greater capabilities to our clients and prospective clients.  As part of this next step, Jefferies will transition SMBC’s U.S. Equities and M&A teams into our business under the Jefferies brand. 

When you read the complete press release, you will see that SMBC intends to become the largest shareholder of Jefferies.  It is anticipated that SMBC will be increasing their stake in our firm from a little under 5% now to 15% through direct and indirect open market purchases.  Upon their reaching 10% ownership of Jefferies, we will be pleased to welcome an SMBC representative onto our Board of Directors.

We share SMBC’s enthusiasm for the platform, market position, brand and value we all have been building at Jefferies over these past decades.  That is why SMBC intends to increase its Jefferies ownership through direct and indirect open market purchases, versus any primary issuance, avoiding any dilution for our current shareholders.  We have ample capital at Jefferies and expect to continue to be buyers of our shares, subject to market conditions, while always prioritizing the perspective of the rating agencies and our bondholders.  There is no one better to own our shares than an extremely well-respected and immensely-capitalized global commercial bank that now has the added incentive to help us all serve our clients and grow our firm.

With their $1.65 billion revolving credit facility at Jefferies Finance (JFIN), $250 million subordinated loan to JFIN, $350 million revolving credit facility at Jefferies, existing investment in Jefferies common shares, and the anticipated additional 10% stake, (even at today’s prices), SMBC would effectively have approximately $3.4 billion committed and invested with us.  We greatly appreciate this significant show of confidence and belief in what we are all building together.

It is a couple of days before May 1, but we believe this event deserves some additional elaboration, so please consider this note to also be our May monthly note to each of you, our partners.  We would like to share with you some observations that we hope you all might take away from today’s news:

1. Creating value.  We often emphasize how fragile everything in life is, including a company.  We also stress how arrogance can destroy a firm, especially in our industry.  Today, we are seeing how valuable, unique and special Jefferies is, at least in the eyes of one of the most important financial institutions on the planet.  It has taken decades for us to build Jefferies to this moment of critical mass, global footprint, strong brand and immense human capital.  The daily focus on serving clients and protecting our home has extended to weeks, months, quarters, years and decades of consistency and purpose.  The result is that we have something incredibly valuable and enviable, and it is worth each of us taking a moment to appreciate what we all are building together.
2. It’s still early.  Despite all that we have said above, we are still early in building Jefferies.  Sure, the markets are difficult right now, but we see gains for market share everywhere we look.  SMBC is not only investing in us for what we are today – they are investing in what we can become.  That is exactly how we both feel, and days like today energize us because we know we are bringing even more capabilities to our firm, which means the building will only get easier and the scale greater.
3. We know what partnership means.  We have been blessed with many wonderful strategic partnerships at Jefferies.  The obvious ones are Leucadia, MassMutual and Berkshire Hathaway.  We believe we are good partners because the people of Jefferies own a culture of treating each other as well as our clients, shareholders and bondholders, as partners.  This means being keenly aware of the needs, goals, sensitivities, priorities and concerns of ALL our partners.  If they don’t win, we don’t win.  This requires empathy, consistency, a long-term mentality and often some short-term compromise, understanding and sacrifice.  We share the upside and the downside, and are always honest, transparent and forthcoming.  We believe this is why SMBC has selected us.  We never take relationships like these for granted and will work our best to further their trust every day.
4. Continuing to be entrepreneurial.  Our partnerships have allowed Jefferies to keep doing what we do best, being entrepreneurial every single day.  When you have strong friends as your strategic partners, it allows you to consistently punch above your weight class and better serve ALL clients.  Our primary competitors may have crazy big balance sheets and government-supported funding, but they don’t have our passion, desire and spirit to serve our clients and build our firm.  Our firm is unique among the major players in our business and there is nothing better than knowing you have access to the capabilities of Goliath while always prioritizing the ingenuity and deftness of David.

Thank you all for being the ones truly responsible for today’s announcement. Like all of our other strategic partnerships, nothing changes overnight, and there will be a lot of work needed to get to what we know we can achieve with and for SMBC.  This is all very exciting, and now, as always, there’s only one thing next to do. Let’s all get to work!

Arigato!

Rich and Brian