Marex Group plc Ordinary SharesMRXNASDAQ
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Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Marex Q3 earnings call. [Operator Instructions] I will now hand the conference over to Adam Strachan, Head of Investor Relations at Marex. Please go ahead.
Adam Strachan: Good morning, everyone, and thanks for joining us today for Marex's Third Quarter 2025 Earnings Conference Call. Speaking today are Ian Lowitt, Group CEO; and Rob Irvin, Group CFO. After Ian and Rob have made their formal remarks, we will open the call for questions. Paolo Tonucci, Chief Strategist and CEO of Capital Markets, will join us as usual for Q&A. Before we begin, I would like to remind everyone that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to Marex's press release issued today. The forward-looking statements made today are as of the date of this call, and Marex does not undertake any obligation to update their forward-looking statements. Finally, the speakers may refer to certain adjusted or non-IFRS financial measures on this call. A reconciliation schedule of the non-IFRS financial measures to the most directly comparable IFRS measures is also available in Marex's earnings release issued today. A copy of today's release and investor presentation may be obtained by visiting the Investor Relations page of the website at marex.com. I will now turn the call over to Ian.
Ian Lowitt: Good morning, and welcome to our third quarter 2025 earnings call. I am pleased to announce another very strong quarter with our performance at the top end of the preliminary range we published on October 8. As you will see, we have continued to outperform. And in today's remarks, I will look to explain how we have evolved the firm to generate this growth and how we've increased our earnings resilience. In the first 9 months of the year, we generated an adjusted profit before tax of $303 million, up 26% compared to the same period last year. This included $101 million in the third quarter, up 25% year-on-year. We have maintained our momentum from the first half of the year despite the more challenging operating environment for some of our businesses. Given the slowdown in exchange volumes since April, some typical summer seasonality as well as the distraction and disruption caused by the short report, we are extremely pleased to have delivered such a strong quarter, our second highest on record. We are grateful for the engagement we've had with our clients and investors and for their support during what has been a challenging period, one we are pleased to have put behind us as reflected in our performance. Our Clearing segment continued to perform very strongly. Average clearing client balances have increased every quarter since Q1 2024 and grew again this quarter, up 4% from Q2, notwithstanding some modest impact from the short report, which has since normalized. We experienced one of our highest ever client onboarding quarters, converting several new large clients during the summer from the strong pipeline we previously highlighted. This reflected in increased commissions and higher clearing net interest income as growth in client balances offset the impact of lower rates. Our balances will, of course, fluctuate to some extent with asset prices and exchange margin rates, but we aim to deliver continued growth in balances to offset further anticipated rate cuts. Our Prime Services business continued to be a standout success and a driver of growth and margin improvement for our Agency and Execution segment. As a reminder, this is a business that had $85 million of revenue when we bought it from TD Cowen in December 2023. On the Marex platform, it has generated $171 million of revenue in the first 9 months of the year. As the Prime business grows across each of its 3 components: Outsourced trading, prime of prime and on-balance sheet prime, we remain attentive to the associated risks. The primary risk is client leverage, which we manage carefully and keep at a relatively low level. The on-balance sheet business is very diverse, both by client and the portfolio of positions. Our Hedging and Investment Solutions business delivered a strong performance as market conditions became more supportive after a challenging Q2. We also continue to expand our product capabilities and geographic reach to access more clients. All of this more than offset a weaker quarter for Market Making in what was a challenging market environment. We continue to see opportunities for growth through disciplined M&A and have an attractive M&A pipeline for the remainder of the year and into 2026. We recently announced the acquisition of Winterflood, which we expect will provide us with an opportunity to transform our existing U.K. equity Market Making business. The Aarna and Hamilton Court acquisitions are performing well, while Agrinvest is providing opportunities to expand our business more broadly in Brazil. These M&A opportunities, along with our organic initiatives are contributing to our geographic diversification as our international investments are starting to bear fruit, particularly in the Middle East, APAC and Brazil. Rob will provide more details on our segmental numbers shortly. We believe this quarter's strong results validate our strategy. On Slide 5, we have laid out some of the key metrics that we use to assess our performance. Third quarter revenues grew 24% to $485 million, delivering an adjusted PBT of $101 million, up 25% year-on-year. Revenues in the first 9 months of the year grew by 23% to $1.45 billion, while margins expanded to 20.9%. Revenue per front office FTE increased to $1.31 million on an annualized basis. Our growth is driven by the addition of new producers as well as our improvements in producer productivity. For the first 9 months of 2025, productivity improvements accounted for around half of our growth. Looking now at the operating environment in more detail on Slide 6. As I mentioned earlier, we are pleased that we've been able to maintain our momentum from the first half of the year even in a more challenging market environment in Q3. In Q3, exchange volumes were down 8% year-on-year and 14% lower than in the second quarter, while volatility also declined to its lowest level in the past year. On the positive side, equity valuations were buoyant with markets at all-time highs, which is supportive of our Prime business and to a lesser extent, our Solutions business. With this backdrop, our third quarter profits were up 25% year-on-year and down just 5% compared to our record second quarter, which included record volumes in April. We aim to set up the firm to deliver growth through a variety of market environments, and our third quarter performance is evidence of our success. This is partly due to the evolution of our business mix, as I'll describe on the next slide. Over the past 2 years, we have looked to strengthen our earnings resilience through product and geographic expansion. Our evolving business mix is now more diverse than it was at the time of our IPO. In 2023, around 70% of our profitability came from Clearing and Agency and Execution in energy, both of which are strongly correlated with exchange volumes. An additional 10% came from Agency and Execution in securities, which was also somewhat correlated with exchange volumes. While every area of the firm has grown since then, the share of profit that is strongly linked to exchange volumes is now around 54% today. As we've described in previous quarters, the most significant incremental contribution has come from Prime Services, which now accounts for nearly 1/4 of our total profits. Prime profits are like Clearing, recurring and dependable and based on client balances. They are high-quality, durable earnings that generate high returns. Within Agency and Execution in Securities, we have grown businesses such as FX, which provide trading revenues that are not captured in exchange volume metrics. These efforts to diversify our firm are not accidental, but rather a deliberate strategy to grow in a way that enhances our earnings resilience. It's also worth noting, as Rob will discuss in more detail, that within Clearing, NII has remained essentially flat in the $50 million to $60 million range despite rates being down 100 basis points from the peak in Q3 2024. Our ability to grow balances has offset those rate reductions and commissions have increased with client balances. This helps explain our strong performance in Q3 and how we've been able to outperform during a period of somewhat lower exchange volumes. With that, I'll hand it over to Rob, who will take you through the financials in more detail.
Crispin Robert Irvin: Thanks, Ian, and good morning, everyone. We are very pleased with the strength of our performance this year. We generated $1.45 billion of revenue and $303 million of adjusted profit before tax in the first 9 months of the year. As Ian mentioned, we achieved this performance despite operating in a less supportive environment for some parts of our business. In Q3, we delivered both revenue and adjusted PBT at the top end of our previously announced preliminary range. Q3 revenue of $485 million was up 24% versus last year. We saw continued strong growth in Clearing and Agency and Execution as well as a strong performance in Hedging and Investment Solutions. Together, these more than offset a softer performance in Market Making, demonstrating the value of our diversified model. Total reported costs grew 24%, in line with revenues. Front office costs were up 23%, reflecting strong revenue performance and continued investments in future growth. Control and support costs were up 26%, primarily driven by higher compensation costs tied to strong performance and investments in our support functions, which include investments relating to recent acquisitions and our compliance with Sarbanes-Oxley. Margins were broadly stable versus the third quarter of last year at 20.7%, delivering adjusted PBT of $101 million, up 25% year-on-year. Our adjusted return on equity remained very strong at 27.6%, all of which meant we delivered an adjusted basic EPS of $1.01 per share, up 23% year-on-year. Focusing now on our segmental performance. We're showing performance over the last 5 quarters to give you a clearer sense of the trends within each business. Starting with Clearing, which grew 14% versus the prior year, driven by growth across all revenue lines, record client balances and higher volumes. I'd highlight the stability in Clearing net interest income despite the continued downward trajectory in interest rates as we have grown client balances to more than offset this. And our new client pipeline for the remainder of the year remains strong. Adjusted profit before tax margins declined slightly to 50% due to continued investments in regional expansion, including APAC, South America and Continental Europe. Agency and Execution continued to deliver strong growth with revenue up 52%, reflecting the breadth of our client franchise and strong client engagement. Securities was the largest overall driver of growth in this segment with revenue up 82%, driven primarily by Prime Services. As Prime has become a more meaningful contributor, we've provided a quarterly revenue breakout. In the third quarter, Prime revenues rose to $57 million, reflecting continued client growth and momentum. Securities ex Prime also delivered strong growth, notably in equities, rates, credit and FX. The acquisition of Hamilton Court, which completed on the 1st of July, contributed $20 million in revenue this quarter, in line with our expectations. Energy grew 7%, driven by continued growth across our large oil, energy and environmental desks. Versus the prior quarter, Energy declined as activity in the third quarter moderated following record volumes in the first and second quarter. Adjusted profit before tax margins improved from 15% to 26%, driven by growth in higher-margin activities, particularly Prime Services and productivity gains from restructuring. Turning to Market Making, where revenue declined by 16%, reflecting challenging market conditions across different asset classes. Robust performances in Securities and Energy were offset by weaker results in Metals and Agriculture. Securities saw growth from equities, credit and FX. This is also where you'll begin to see contributions from Winterflood once the transaction closes. Energy performed strongly, benefiting from higher client hedging activity versus the prior year. Metals declined in the third quarter amid ongoing uncertainty surrounding global tariffs as well as a tough comparison. Base metals, where we have significant footprint, was soft due to reduced client activity and lower volatility of precious metals, where we currently have lower exposure, performed well, supported by price strength in silver and gold. Agriculture remained under pressure as ongoing tariff-related uncertainty and elevated commodity prices, particularly in cocoa and coffee, which reduced liquidity and open interest. Our performance was broadly in line with the second quarter. Adjusted profit before tax margins reduced to 16% reflecting lower revenues. Solutions revenues grew 36%, delivering its strongest quarter on record with growth across Financial Products and Hedging Solutions. Hedging Solutions grew 20%, driven by robust client demand and continued momentum in FX. Financial Products grew 54%, reflecting strong performance in equity-linked structured notes. Margin rose to 25%, reflecting the strong revenue growth. Despite this margin improvement, we continue to incur elevated costs associated with platform investment and new hires to support future growth. Now looking at the first 9 months of the year. Clearing grew 15% on last year with growth across all revenue lines. The addition of new clients has led to higher volumes and client balances. Margins remained strong at 50%. Agency and Execution was the strongest performer with a 51% increase in revenues and strong profit growth as margins expanded to 25%. This was driven by growth in both Securities and Energy. We saw strong performance in all asset classes within Securities and strong demand in Energy, reflecting record volumes in the first half of the year. Market Making revenues decreased by 6% as lower revenue in Metals and Agriculture were partly offset by growth in Energy and Securities. Finally, Solutions revenue increased 10%, mainly due to growth in Financial Products, where margins were lower from the ongoing investment in our new technology platform. Previously, I presented our volume data at this point. However, given the evolution in the mix of our business that Ian spoke about, we plan to update this as part of our year-end process. You will still find the exchange volume data slide in the appendix for consistency. Turning now to net interest income. NII for Q3 was $38.6 million, down $25 million compared to Q3 2024. Interest income was up modestly at $194 million, driven by total average balances growth of $4.8 billion, which broadly offset a 100 basis point decline in the average Fed fund rate. Interest expense increased to $155 million as we had an additional $1.7 billion of average structured note balances and 2 senior debt issuance. We continue to hold significant levels of liquidity as we went through the third quarter, allowing us to position the firm strongly to support our clients and grow organically, which creates a headwind to NII. Compared to the second quarter, NII was up $4 million, driven by growth in average Clearing client balances. Clearing balances increased to $13.3 billion as we continue to add new clients, resulting in stable Clearing NII as this growth has more than offset the reduction in average Fed fund rates. Looking now at our balance sheet. As a reminder, on this slide, you can see that 80% of our balance sheet supports client activity. These are high-quality liquid assets. Once we net off assets and liabilities by client activity, we are left with a corporate balance sheet that carries corporate cash and other assets against group liabilities, including our structured notes portfolio and senior note issuance. Total assets increased to $33 billion at the end of September, driven by growth in client balances and Clearing and growth in Securities, which includes Prime. We continue to manage our capital and liquidity risk prudently, maintaining significant headroom above minimum requirements to ensure we are well positioned in periods of market stress. At the end of the third quarter, total corporate funding was $5.8 billion, up from $3.8 billion at year-end, with $1.5 billion of surplus liquidity above our regulatory requirements. This also supports our investment-grade credit ratings from both S&P and Fitch. In September, S&P reaffirmed our rating, reflecting our robust performance and strong balance sheet. Finally, we announced again a quarterly dividend of $0.15 per share for the third quarter of 2025 to be paid to shareholders on December 3. We are a proactive and involved risk management approach at Marex. In Market Making, we are a client flow-driven business and do not take a directional view on prices. However, we do carry a small level of inventory to source client demand and capture the trading spreads. Average daily VAR was $3.9 million in the first 9 months of 2025 and remains at a very low level relative to the growth in the overall business. In terms of credit risk, we had a realized credit loss of $800,000, representing just 0.1% of revenues and reflecting our proactive and disciplined approach to credit risk management. Now I'll hand back to Ian for concluding remarks.
Ian Lowitt: Thanks, Rob. So in conclusion, at our Investor Day in April, we outlined our expectation of delivering sustainable profit growth in the 10% to 20% range. Around 10% of this is expected to be organic, with the remainder, which we estimated to be around 40% of our total growth coming from inorganic opportunities. We have a strong track record on that front and remain confident that we can continue delivering given the pipeline of opportunities ahead. Since going public, we have consistently outperformed market expectations, and we're particularly pleased to have maintained this outperformance during the current quarter despite a less supportive market environment. This success is due to the diversification of our franchise. Of course, we remain mindful of headwinds, including rate reductions and lower exchange volumes as we have seen this quarter. As you've heard on this call, we're delivering consistent Clearing NII despite rate cuts as our growth in client balances has absorbed this. And our diversified business has continued to perform strongly despite weaker exchange volumes as we have continued to add new clients and capabilities. Together, this demonstrates how we position Marex to outperform this quarter and how we have set up the firm to continue to grow through a range of market environments. I'm pleased to report that the fourth quarter has started very strongly, and we remain optimistic about the remainder of 2025 and the year ahead. We're in the middle of our 2026 budget process, and it's exciting to see all the opportunities before us as our markets develop. Settlements in stablecoins, event contracts, crypto prime brokerage, there are just so many opportunities for us in addition to all the other organic opportunities we've discussed with you before. With that, I'll hand it back to the operator to open the line for questions.
Operator: [Operator Instructions] Your first question comes from the line of Chris Allen with Citi.
Christopher Allen: I guess I just wanted to start off on the fourth quarter commentary, noted off to a strong start. Maybe just if you could provide some color just in terms of where you're seeing improvement? Is it from an environmental perspective, client additions or just some of the new acquisitions coming up to speed?
Ian Lowitt: Chris, yes, look, I think we're seeing sort of strength across interestingly, all of our businesses. So we're actually seeing strength in Clearing. We're seeing strength in Prime. We're seeing strength in our Agency and Execution. We're seeing strength in elements of our Market Making, and we're seeing actually record levels in our Solutions franchise. So it really does have the feel of all of the parts of the firm are sort of performing well. I mean, I think when you look at exchange volumes, they're up marginally on sort of the prior month. So really, it just feels like the momentum that we had as we came out of sort of Q3 has continued into Q4. October was a record month for us. And I think on the basis of what we saw in October and what's continued, albeit it's only 2 days into November, I think we would be certainly expecting -- notwithstanding the fact that we don't know what will happen in the last 2 months, we would certainly expect on the basis of October to have a record quarter in the fourth quarter.
Christopher Allen: And then just for a follow-up question. Obviously, you're seeing good client additions in a couple of different businesses. Maybe you could talk to the pipeline for clients, specifically in Clearing and Prime in the months ahead.
Ian Lowitt: Let me take the question on Clearing and then Paolo is here, and he can sort of talk to the opportunities in Prime on the client side. I mean, what we're seeing is really just a continuation of what we've been describing to you for quite an extended period. So what we're seeing is a combination of the normal addition of small and medium-sized clients that are looking for essentially single clearance. And then we're seeing our ability to bring on board some of the sort of largest, most sophisticated sort of players. And those have very long sort of lead times to them. So just in the last couple of weeks, we've brought on board one client that I think we've probably been talking to for almost a year, very large client, and they're just coming on now. So the good side of this is you have a very accurate sense of the pipeline. And it just feels like the same things that we've been seeing before are playing out, which is there are a bunch of large players that are looking to diversify their clearing. They're looking for a firm with the skill set that Marex has, its orientation around client service. And they find our offering sort of intriguing. And we're just having more and more great conversations with clients. And as we grow out globally and as we add more products, we can solve more of their problems and we're winning more mandates. What would you add to that?
Paolo Tonucci: And just in terms of the Prime business, similar to Clearing, very strong pipeline, probably as strong as we've ever seen. And the mix of those clients is also, I would say, sort of improved. So more interest from the sort of larger and more active participants in the market. I mean, certainly, going back to your earlier point about what's driven performance, what's likely to drive performance. Certainly, the fact that equity markets have been so buoyant has helped. But I suspect that actually most of -- the vast majority of our improvement has been driven by the incremental clients that we brought on.
Operator: Your next question comes from the line of Ben Budish with Barclays.
Benjamin Budish: Can you guys hear me okay?
Ian Lowitt: We can, Ben.
Benjamin Budish: Maybe my first question, it sounded like at the end of your prepared remarks, you mentioned crypto as an emerging opportunity in addition to Prime and other sources of organic growth. Just curious, I think you do a small bit of that currently. Could you maybe just give us a little color on what your exposure is today and how you think about that opportunity set maybe over the next few years as the regulatory environment is clearly changing in a more constructive way?
Ian Lowitt: Yes. I mean, look, I think we actually have built a lot of the building blocks that we need to be able to offer clients a pretty comprehensive set of services in the space. So the focus of our efforts to date has been around sort of clearing crypto futures on exchange and supporting our clients with regard to that. And we've also provided our clients with a series of services around certain sort of settlement capabilities they've been looking for with regard to ETFs that they have launched, and that's been sort of another area where we've participated. We're in a position where we can sort of cross-margin clients with sort of their crypto margin posting together with sort of other products. And then within our Solutions business, although it's not sort of a big part of what we do, we've needed to build out capabilities so as to sort of custody assets in part because while it's not a big part of what we do in structured notes, some of the structured notes issuance that we do has returns that are linked to crypto. So the opportunity that we really see for ourselves is essentially fleshing out the range of services that might loosely be termed sort of prime brokerage for crypto, which are probably not very different to the set of services that clients look for when they look for sort of FX prime brokerage. So they're looking for you to be able to buy or sell sort of crypto. They're looking for you to be able to take on stablecoins. They're looking for you to be able to take stablecoins or crypto as collateral. They're looking for you to be able to settle across multiple exchanges on their behalf, just as you would as a prime broker. They're looking for you to potentially be able to provide them with limited amounts of leverage. And I think that we're in the process of sort of building all of that out. And it's a very exciting opportunity. The market is changing. The world feels like it's moving to 24/7 trading, including sort of tokenized versions of treasury or equities. And it feels like a set of opportunities that on the back of our client relationships and the capabilities we have and our sort of scale as an organization that we'll be able to take advantage of.
Benjamin Budish: All right. Very helpful. Maybe just one follow-up. Just coming back to the Prime side, and all the extra disclosures and commentary quite helpful. Can you just maybe talk a little bit about where the customers have been coming from? I think it's a lot of U.S. business, but have they been sort of cross-sells against the existing customer base? Has this been the result of maybe a business that needed some investment, which you've then done since you acquired that business a few years ago? And then going forward, similarly, do you see this as a cross-sell opportunity? Is it organic, net new? How do you think about those bits and pieces in terms of go-to-market?
Ian Lowitt: Yes. Thanks, Ben. I mean, in terms of the geographic split, the majority of the growth has been in the U.S. I mean, it's where we have a more mature offering and where we probably have the majority of our sales teams. It's not to say that there's no growth in other areas, but I mean, the proportionate growth has been in the U.S. In terms of the mix of sort of new clients versus existing clients that are being offered this service, that's actually been a pretty even split. A lot of our clearing -- a lot of the relationships have been introduced by Clearing. They're clearing relationships that have been servicing businesses that have needs for a broader sort of prime offering. So I would think half of our new clients have come from that source. The other half are sort of a mix of opportunities and relationships that have sort of been worked on for some time. And for a variety of reasons, we weren't able to offer the full set of services. Some of those are ETF managers. ETF managers have become a sort of an interesting sort of subsector, but the sort of traditional prime clients still represent the majority of assets under management. And that's just the sort of typical range of hedge funds and family offices, some trading groups that we can now offer them a much more comprehensive set of products, I think, is the sort of main driver. And then the stability of our offering versus what they've sort of experienced in the last couple of years, I think, has been very helpful.
Operator: Your next question comes from the line of Alex Blostein with Goldman Sachs.
Alexander Blostein: I was hoping to expand a little bit on the earlier discussion around crypto coins, prediction contracts, but maybe as it relates to retail investors, in particular, I guess, what role do you guys see Marex playing in that ecosystem? How are you thinking about connecting to some of the retail brokerage platforms where a lot of their activity obviously originates. So maybe help us kind of think about what you see the addressable market really here for your business and which part you're looking to participate in?
Ian Lowitt: Yes. I mean, I suspect that the opportunities are a little different in the different parts of that ecosystem. So if you're just talking about, for example, event contracts, I think that this is -- it's an area that is generating quite a lot of interest and excitement. There's a lot of work that's going on with regard to potentially having some of those contracts listed on the actual exchanges, in which case, there's sort of a requirement for an exchange clearer. So we are in discussions with some of our clients who are aggregators of retail flow, particularly the ones outside the U.S. who are interested in being able to offer those types of products to their clients. So [indiscernible] contracts, either for financial instruments or if it evolves into a series of contracts that are broader than just financial instruments. They would want to be able to offer those to their clients. And that's the way in which we've chosen to participate with retail flow. So we are the clearer for a lot of the retail flow aggregators outside the U.S., and that's a way for us to participate in that. I mean, in terms of, for example, stablecoins as payment, I mean, there may be a retail angle to that. It's not one that we're exploring at all. But we engage with many of our clients who have shared with us what appear to be some genuinely interesting use cases with regard to payment and stablecoins and are engaging with us in helping them to provide those services. So I believe quite strongly that, that will sort of take off over the near term and that will represent an opportunity for us. I mean, obviously, coming off stablecoin as a method of payment will be a view that people want to have stablecoins available as a source of collateral. That creates sort of a set of opportunities, which is how do you convert a stablecoin into something that generates interest, if it's going to be utilized for the purpose of collateral. Then if you're dealing with that, there are a whole slew of additional prime opportunities that I think sort of arise with that. But that is -- that at least for us at the moment is much more of a sort of sophisticated financial player opportunity. So the retail stuff feels like it's around event contracts, and we will be working with people who clear through Marex to get access to exchange. And these other opportunities, we're likely to pursue with some of our more sophisticated sort of financial counterparts. Did that answer your question, Alex?
Alexander Blostein: Yes. No, that makes a lot of sense. Second question, I wanted to just follow up on the point made earlier around liquidity buildup, and you guys obviously issued a little bit of debt early in the year. You continue to utilize the structured notes as part of the funding as well. Where are you sort of in building some of the maybe excess capacity? I don't know if that's a good way to frame it. But as you think about sort of excess capital that maybe exists within the ecosystem today, that's kind of truly deployable, what's that amount today? What is the ROE you're targeting for that? And is that sort of enough to support the business over the next, call it, 6 to 12 months? Or do you see yourself sort of coming back to market seeking incremental liquidity? I don't know if that makes sense, but that's the nature of the question.
Ian Lowitt: Yes. I mean, I'm very sensitive to the differentiation between sort of liquidity and capital. I think of capital as equity. So there's sort of a question about equity, and then I think there's a question about liquidity. So I think that -- where I think we are with regard to liquidity is the following. We want to establish ourselves as a regular issuer in sort of the U.S. so that there's just sort of a broad sort of understanding of our credit and broad acceptance of our name so that we are able to tap into that market if we ever want to. So if there was a big acquisition or whatever, that sort of tapping into a large investment-grade pool is available to us. And that's a strategic objective that we have. And so this year, we sort of issued into the U.S. even though we didn't have a specific need for the cash, we felt that, that was something that we want to do. And I'm almost certain that we would look to sort of continue that into next year. So establishing a debt program in the U.S. is very important to us. And if you're not issuing sort of $500 million slugs, you really don't have the kind of size that's interesting to investors. And so that's what I think you should anticipate, not for any reason other than you need to be a frequent issuer in order to establish yourself. I mean, you've got a sense of how fast the firm is growing. So even in a year like this, it looks like we've been growing near the sort of 25%. And hopefully, you have a sense from sort of the commentary that we're pretty excited about sort of the prospects we have next year. And we recognize that as we grow, we want to maintain the firm as sort of super safe from a liquidity perspective. So I think you should expect that we will come to market for debt, notwithstanding the fact that we already have sizable surpluses, mostly because we're comfortable carrying those surpluses and we want to sort of be in the market and a frequent issuer. With regard to equity, we do recognize that as sort of the constraint. There has to be one on the firm, and it's equity. So we have to be very mindful of how we deploy it. We're running quite a bit above sort of the 10% strongly capitalized level on the RAC ratio, and that represents sort of excess that we are carrying, but we're still generating 27% ROE on average. And as we look to deploy our equity, we really don't want to be dilutive. So we're looking for plus 20% returns when we're talking about acquisitions or internal deployment of that capital. And as we look in our budget process and we look at our opportunities next year, then certainly over sort of 6 months or longer, we are confident that we can continue to support that growth with the internal capital generation that comes with the level of earnings that we're also delivering.
Operator: Your next question comes from the line of Dan Fannon with Jefferies.
Daniel Fannon: I wanted to follow up just on the competitive environment. You guys have obviously been having success in adding clients and clearing balances. Just curious if you've seen any change in dealer behavior given the regulatory changes that are softening up for them? Or any shift in the competitive backdrop as you think about the prospects of additional market share gains going forward?
Ian Lowitt: I mean, it's sort of interesting. I mean, this is sort of my perspective on it and then interested in Paolo's perspective as well. I mean what we see from the banks is much more active involvement in trading and looking for us to help them access market liquidity, which is completely noncompetitive activity and actually help support our business. What we are not seeing is a sort of different level of competition for sort of clearing, which, again, as we've shared on some of these calls, is not a surprise to us because of sort of the very long lead time associated with clearing mandates as well as the fact that you need to make a lot of investments as well as the fact that you need to invest in organization and sort of capabilities. So we're not seeing a change with regard to that. And we're not really seeing a change with regard to sort of pricing on structured notes or any of these other products. So at the moment, it does not feel as though the lower sort of capital requirements that are sort of being imposed on banks by this current administration's regulators is affecting our prospects. I don't know what you would...
Paolo Tonucci: Yes, no, I'd agree with that. I think we've seen 1 or 2 spots where there's been a little bit of incremental competition. On the stock lending side, we've seen a couple of new entrants somewhat aggressive with pricing. But that doesn't really -- it's not really disrupted our progress with acquiring prime clients. I mean, it has a sort of very marginal effect. You can see a little bit of that in the third quarter versus the second quarter where there was a bit of sort of rate compression, but very much at the margin. Beyond that, I think the sort of the combination of sort of expertise and the sort of quality of the offering sort of remains a really important differentiator. And we typically are seeing, whether it's sort of clearing or prime, pretty consistent competition. It is competitive. It's not that we have a completely free field, but no one sort of competing really on pricing other than, as I said, a little bit of sort of compression on some of the stock lending.
Daniel Fannon: Great. That's helpful. And then just as a follow-up, you talked about an active potential M&A pipeline. I just would like to get a little more context around that versus prior periods. And as you think to 2026, do you anticipate that being a more active year than what you guys have done so far or will do in 2025?
Paolo Tonucci: Yes. I think it's all lining up to be a very active '26. I think there's still a couple of months left in '25. So we're still hoping to sign at least a couple of sort of agreements, but '26 really is sort of lining up very well. I think the continued sort of interest from companies in joining the sort of Marex organization and being sort of part of our platform really has driven a lot of that sort of reverse inquiry. So we're benefiting now from many companies wanting to be part of Marex and sort of coming to us. And even in the competitive processes, and you will be aware of some of those, even the competitive processes, we often start in a very good position because of the sort of track record of successful M&A. So I think '26 will be a strong year.
Operator: Your next question comes from the line of Bill Katz with TD Cowen.
William Katz: Ian, just maybe a qualifying question first. You mentioned that, obviously, we still have another 2 months to go, but it could be a record quarter. Is that revenue, volume, earnings, all of the above? I'm just sort of curious of where you -- I just want to make sure I understand where the deeper momentum might sit. And then I have a bunch of follow-ups.
Ian Lowitt: Yes. I mean, just when I say records, I actually just care about profit. So I think it's -- when I say a record quarter, it's a record profit quarter. That said, I mean, I think we'll be on track for a record revenue quarter as well. So it will be a combination. But really, when I say record, my focus is on profit.
William Katz: Okay. Maybe a broader question for you. A lot of my other questions were asked already. Just as we think through tokenization and blockchain technology, could you talk a little bit about maybe the pros that you could see for the business? Does it unlock any efficiencies for you that could also potentially accelerate the M&A pipeline for you? And then conversely, is there any risk to any of the businesses as things move from sort of the TradFi into the DeFi platform?
Ian Lowitt: Yes. I mean, here's sort of what we see at the moment. So I mean, around tokenization, the big benefit is that these markets can sort of operate 24/7. And so in one form or another, we think that the way that is likely to play out is that people will be able to transact not just sort of crypto 24/7, but there will be tokenized versions of treasuries and equities and a range of other assets. And it's sort of hard for me to see how you do that away from sort of tokenization. So I think that, that's clearly going to be an opportunity. And to the extent that there's sort of more activity in the world because people are trading more days and more hours, I think that's good for our business. I think that there's also sort of a tokenization opportunity around sort of stablecoins and again, the fact that it's sort of 24/7, and it means that people can make payments weekends, they can make payments at night. All of those kinds of things, I think, will also add to the activity and out of payments in stablecoin will come a whole sort of slew of other services that people will look for with regard to sort of stablecoin. And again, I think that, that's additive to our business. In terms of the concern that somehow we move to tokenization for everything and that, that potentially disrupts sort of clearing and the clearing ecosystem, I must express some level of sort of skepticism around that. I do think that the activity is going to sort of continue -- or a lot of that is going to continue to be cleared on exchange. If we get sort of our cash sooner rather than later, that's a good thing rather than a bad thing. And I've never understood how for very, very large sets of data like a clearing house, you sort of have benefit of being tokenized where what you've got to do, you've got to sort of keep track of more and more nodes and at some level, that feels like that should not give you economies of scale, but at some level, this economies of scale. So it's conceivable that there are changes to the exchanges and the exchange ecosystem, but we can't anticipate what those are. We don't see those as sort of being real. What we do see, though, is a series of opportunities. And we believe that we're setting ourselves up to capture those, and we think we have sort of the organizational nimbleness to position ourselves well. And critically important, we have relationships with a series of the most sophisticated players in the space, and we're working together with them. And that's an absolutely massive competitive advantage for us as we determine how these things are likely to play out because you're not sort of building things with a view that at some point in the future, somebody might find it useful or interesting. You're engaging in things that sophisticated clients are talking to about today that would be very helpful and that they're willing to engage in, in size.
William Katz: Okay. If I could maybe squeeze a third one in, I apologize for maybe overstaying my welcome. But just another big picture question for you as you sort of think through 2026 and very encouraged by the momentum of the business and the pipeline. So maybe a two-parter. Can you give us an update on just how things are progressing with Winterflood, Valcourt, just in terms of initial expectation that you've had a little bit more time to work with those platforms a little bit? And then the broader question is, as you look to next year, how do you sort of see the interplay between revenue growth and margin opportunity? I appreciate that some of these deals come on at suboptimal margins, take some time to get you there. But how do you sort of see the interplay driving profit before tax growth year-on-year?
Paolo Tonucci: Yes. Thanks, Bill. I mean, in terms of the progress that we have made with all of the acquisitions, I mean, including those that are closed, Aarna, which was the Abu Dhabi acquisitions, now Marex Abu Dhabi, that's sort of -- it's on track. It's in line with our expectations. I think the Hamilton Court acquisition has outperformed expectations, and they've had also a record month in October. And I think we're starting to see some of the benefits of linking that into our wider client base. And the margins there, you can see that will improve. Margins are somewhere in the sort of high 20s, low 30s. I think that, that will sort of improve with revenue growth as they settle into being part of the bigger platform, Winterfloods, I expect will show a similar pattern. From what we can see, although we don't have all of the details, it looks like they've had a very strong last quarter. Certainly, it looks like it's, from a revenue perspective, one of the best quarters they've had in the last 3 years. So we're quite optimistic that, that business is actually building up some momentum and we'll accelerate that. But it will start a relatively low margin. It's not going to -- we're not going to be getting a 30% -- or a high 20% PBT margin. I think from an ROE perspective, it will probably be quite accretive, though. So I'm optimistic about that. Valcourt is a small business, but where there's more value in the accounts that are opened up, and we're seeing that coming through, but that won't move the needle. That won't move the needle in terms of profit or margin. And generally, I think the trend that we're seeing has been an improvement in margins. The improvement in margins has been sort of very broad-based. But obviously, the area where we still have the lowest margins are the Agency and Execution ex Prime. And that, I think, benefits from some of the new desks settling in and maturing. And we have had a large number of new desks. And we've -- as you've seen, we've become much more active in credit, much more active in FX. So I think you can expect some margin improvement, I think, from the sort of low to mid-teens up into the sort of higher teens. And that will drive the overall group's margin improvement because they're quite large revenue streams.
Ian Lowitt: I mean, just sort of for clarity, we haven't closed Winterfloods yet. So we're waiting on approval from the regulators. But obviously, to the point of your question, we are engaged with some of the folks there. And so we are learning more about their business. But obviously, that hasn't closed yet. We hope to close this year, but if that doesn't happen, we would expect it to close early next year. I think with a sort of general point with regard to 2026, I think that as we've indicated, we expect that -- we're hoping that margins will improve, but we really are not looking to improve margins dramatically because we continue to invest. And we think that that's the right decision to make to position the firm for long-term success. And so while we hope that margins improve and they should, as a result of some of the things that Paolo was describing and other things that we have going on inside the firm, we don't see ourselves dramatically changing margin in part because the business mix doesn't change that quickly. And also we want to continue to invest in support and control. We want to continue to invest in opportunities that are likely to generate returns for us in the future. And we're confident that, that's the right way to sort of operate. So '26, we'd expect margins to get better, but not dramatically better.
Operator: Your next question comes from the line of Ben Budish with Barclays.
Ian Lowitt: Ben?
Operator: Please, Ben, go ahead. It seems like Ben Budish has disconnected. We'll go to the next question coming from the line of Carlos Gomez-Lopez with HSBC.
Carlos Gomez-Lopez: The first question is about the fact that you are a frequent issuer in the debt market. Have you considered to retap the AT1 market as well? And what do you think of pricing in that space? Second, in terms of the long-term ROE of the business, when you went public, I think you were comfortably at something like 20%. You are now comfortably around the 27%. I know that you are more focused on margin than ROE, but where do you think you will stabilize in the long run?
Ian Lowitt: So with regard to AT1, I mean, I think we remain sort of interested in AT1. And at some point, it will sort of come back on to the menu of things that we might do. I don't have a sort of current price of where we think we'll be able to bring AT1. I don't know, Paolo, if you have...
Paolo Tonucci: Well, yes, but we sort of -- we stay close to all of these issuances and prices are interesting, but we don't need to issue at the moment. And we have a maturity in 2027. So we have a little bit of time before we have to make that decision. But we're certainly close to that market.
Ian Lowitt: Yes. And then with regard to ROE, I believe that we can continue to operate in and around sort of the current levels of ROE, so somewhere between 25% and 30%. I mean, as you say, we don't manage to it. So I'm comfortable, for example, that we're carrying some amount of excess equity, which is, I think, desirable and creates optionality for us. I mean, we could be driving up our ROE if we reduce the level of equity. But I think that equity represents -- it's sort of critical to sort of support the growth of the firm. And so I think we're sort of happy to do that. But given the mix of what we do, which is essentially supporting flow rather than holding any positions, that's an inherently high ROE activity. And my hope and expectation is that we'll continue to operate in that 25% to 30% range.
Carlos Gomez-Lopez: That's very clear. And if I can follow up, and I'm sorry to ask this, but can you give us an update on all the litigation that you as a public company now you have to face and how much that is costing all of you, the management team, in terms of time and effort. And again, sort of I guess that's something we need to be updated on.
Ian Lowitt: Yes. I mean, look, I think that -- I mean, one of the things that sort of happens with a short seller report is there are -- these class action lawsuits that sort of follow inevitably with those. Our lawyers in New York are extremely confident that they will be able to get that dismissed because it's sort of groundless. The costs associated with it are not significant. And so it feels, at least at this point, more of a sort of distraction and sort of a nuisance more than anything else. And so I wouldn't draw much from it. It's just a natural consequence, the same law firm sort of follows all of these sort of short reports and sort of files these class action lawsuits. Obviously, we don't know exactly how that plays out. But at least based on the advice that we have received so far, it doesn't feel like it's sort of consequential.
Carlos Gomez-Lopez: Very clear.
Ian Lowitt: All right. Well, thanks, everybody. Thanks for joining us. Thanks for all the questions. We look forward to continuing the conversation with the analysts and with investors over the next period. We're really, as you've hopefully got a sense of from the answers to the questions, sort of excited about our prospects, both in terms of sort of newer opportunities as our markets evolve as well as the sort of standard opportunities that come from sort of share gains in our products. And so we're excited about and enthusiastic about where we think we'll end the year and then our opportunity set in '26. So thanks for joining us, and we look forward to continuing the conversation with you all.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.