Japan's Sumitomo Mitsui Financial Group is exploring a potential takeover of Jefferies as the Wall Street investment bank's shares have tumbled 40% since September. SMFG, which already owns a 20% stake in Jefferies through its banking subsidiary, has assembled a small team to prepare for a possible acquisition if the depressed share price presents an opportunity.

A deal would face significant hurdles, including regulatory obstacles and a cultural divide between the conservative Japanese lender and the aggressive US investment bank. SMFG's market capitalization of $125 billion dwarfs Jefferies' current $8 billion valuation, but executives warn any move is not imminent. Jefferies' leadership, including CEO Rich Handler and president Brian Friedman, hold substantial stakes and may be reluctant to sell at current prices.

The potential acquisition aligns with SMFG's long-term strategy to join the ranks of top global investment banks. The Japanese lender has previously pursued international expansion through acquisitions like the 2009 purchase of Nikko from Citi and a 2011 partnership with Moelis. SMFG is now testing integration with Jefferies through a new Japanese equities joint venture, viewing it as both due diligence and a culture compatibility test.