A strategic alliance with Jefferies: borrowing a foreign investment bank (2021)

Choosing to borrow the vessel

The core of this decision was that, rather than building or buying outright the vessel of an overseas investment bank, it borrowed one by taking a minority stake in another firm. The three megabanks had long lacked a presence in U.S. and European investment banking, and after the Lehman crisis Japanese players repeatedly expanded overseas footholds only to retreat. Jun Ota chose to avoid that rut: tying himself to the proven Jefferies through capital while first testing the fruit through business cooperation, and raising the stake in steps — 4.9%, 15%, 20% — as results warranted. The risk was lighter than an all-in acquisition, and the bond firmer than an alliance without capital.

A borrowed vessel, though, is not one’s own. SMBC has built its holding through non-voting shares, keeping its voting rights below 5%. Because it does not hold managerial control, Jefferies’ independence is preserved, and how long the two firms’ interests overlap depends in part on the partner’s strategy. That the course continued after the death of Ota, who had drawn the alliance up, shows this was an organizational choice rather than one man’s notion. How far this way of borrowing another firm’s track record to shore up a weakness in overseas investment banking can move past the reckoning of an era that insisted on doing everything in-house — the step-by-step design is also a device for measuring the answer to that question without rushing it.