Earnings Call Transcript - MRX Q3 2025

Operator, Operator

Thank you all for being here and welcome to the Marex Q3 earnings call. I will now turn the call over to Adam Strachan, Head of Investor Relations at Marex. Please proceed.

Adam Strachan, Head of Investor Relations

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, Group CEO

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.

Rob Irvin, Group CFO

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, Group CEO

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

Your first question comes from the line of Chris Allen with Citi.

Christopher Allen, Analyst

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, Group CEO

I believe we are experiencing strength across all our businesses. We are seeing solid performance in Clearing, Prime, Agency and Execution, and parts of our Market Making, along with record levels in our Solutions franchise. It really feels like every part of the firm is performing well. If you look at exchange volumes, they have increased slightly compared to the previous month. The momentum we gained coming out of Q3 has persisted into Q4. October was a record month for us, and based on what we observed in October and the early days of November, we expect to have a record quarter in the fourth quarter, even though we cannot predict what will happen in the final two months.

Christopher Allen, Analyst

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, Group CEO

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, Chief Strategist and CEO of Capital Markets

The Prime business is experiencing a very strong pipeline, likely the strongest we've ever had, with an improved mix of clients. There is increased interest from larger and more active market participants. The buoyancy of equity markets has certainly contributed to our performance, but I believe that most of our improvement has come from the new clients we have onboarded.

Operator, Operator

Your next question comes from the line of Ben Budish with Barclays.

Benjamin Budish, Analyst

Can you guys hear me okay?

Ian Lowitt, Group CEO

We can, Ben.

Benjamin Budish, Analyst

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, Group CEO

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, Analyst

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, Group CEO

Thank you, Ben. Regarding the geographic distribution, most of our growth has occurred in the U.S. This is where we have a more established offering and a larger sales team. While there are growth opportunities in other regions, the primary growth has been in the U.S. When we look at new clients compared to existing clients accessing this service, the distribution has been fairly balanced. A significant portion of our new relationships has come through Clearing, which has been servicing businesses requiring a broader prime offering. I would estimate that about half of our new clients have emerged from that avenue, with the other half stemming from various opportunities and longstanding relationships that we were previously unable to fully service. Some of these clients are ETF managers, who represent an interesting subsector, yet traditional prime clients still account for the majority of assets under management. This typically includes hedge funds, family offices, and certain trading groups. Our ability to provide a more comprehensive range of products is a key factor in our growth. Additionally, the stability of our offerings compared to what clients have experienced in recent years has been beneficial.

Operator, Operator

Your next question comes from the line of Alex Blostein with Goldman Sachs.

Alexander Blostein, Analyst

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, Group CEO

Yes, I think the opportunities vary across different areas of the ecosystem. For example, event contracts are generating significant interest. There is ongoing work to potentially list some of these contracts on exchanges, which would require an exchange clearer. We are in discussions with some retail flow aggregators, especially those outside the U.S., who want to offer these products to their clients. They are interested in contracts that may include financial instruments and possibly expand beyond that. We aim to participate in the retail flow by serving as the clearer for many of these aggregators. Regarding stablecoins as a payment method, while we are not specifically exploring this aspect ourselves, we are engaging with clients who are interested in use cases related to stablecoins for payments. I believe this will take off in the near term, presenting an opportunity for us. Furthermore, if stablecoins are viewed as a source of collateral, that opens up additional opportunities, such as how to convert stablecoins into interest-generating assets. There are many sophisticated financial opportunities tied to that. Currently, it seems that the retail opportunities center around event contracts, and we'll work with those clearing through Marex to access exchanges. Other opportunities will likely be pursued with more advanced financial counterparts. Did that address your question, Alex?

Alexander Blostein, Analyst

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, Group CEO

Yes, I understand the difference between liquidity and capital. I see capital as equity, and there are questions surrounding both. Regarding liquidity, our goal is to position ourselves as a regular issuer in the U.S. This would help to ensure broad understanding and acceptance of our credit, allowing us to access the market whenever needed. For instance, if we were to pursue a significant acquisition, having access to a large investment-grade pool would be beneficial. This year, we issued in the U.S. despite not needing cash, as we believe it's important to do so. We plan to continue this strategy into next year. Establishing a debt program in the U.S. is crucial, and we believe that to attract investor interest, we need to issue sizable amounts, rather than smaller offerings. Given the firm's growth, which appears to be around 25%, we are excited about our prospects for next year. We are committed to maintaining a strong liquidity position as we grow, so you can expect us to enter the debt market even with our current surpluses. We are comfortable with these surpluses as we value being a frequent issuer. On the equity side, we understand it can be a constraint, so we are thoughtful about how we use it. We are currently above the 10% strongly capitalized level on the RAC ratio, indicating excess capital, while still achieving an average ROE of 27%. When we deploy our equity, we seek returns over 20% for acquisitions or internal investment. In our budget discussions for next year, we are confident we can sustain growth through the internal capital generated by our earnings.

Operator, Operator

Your next question comes from the line of Daniel Fannon with Jefferies.

Daniel Fannon, Analyst

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, Group CEO

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, Chief Strategist and CEO of Capital Markets

Yes, I agree with that. We've noticed one or two instances of some increased competition. In the stock lending area, there have been a few new players that are somewhat aggressive with their pricing. However, this has not significantly disrupted our ability to attract prime clients. The impact has been marginal. You can see some signs of rate compression in the third quarter compared to the second quarter, but again, it has been minimal. Overall, the combination of our expertise and the quality of our offerings remains a key differentiator. Typically, we experience consistent competition, whether in clearing or prime services. It is competitive, but we don't have any players seriously challenging us on pricing, aside from some slight compression in stock lending.

Daniel Fannon, Analyst

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, Chief Strategist and CEO of Capital Markets

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, Operator

Your next question comes from the line of Bill Katz with TD Cowen.

William Katz, Analyst

Ian, I have a qualifying question. You mentioned that we have about two months left, but it may be a record quarter. Are you referring to revenue, volume, earnings, or all of these factors? I'm curious about where the greater momentum might be. I also have several follow-up questions.

Ian Lowitt, Group CEO

Yes. When I refer to records, I'm primarily focused on profit. So when I mention a record quarter, I'm talking about record profit. That being said, I believe we'll also achieve record revenue this quarter. It will be a combination, but my main emphasis is on profit.

William Katz, Analyst

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, Group CEO

Yes, currently we see a significant advantage in tokenization, particularly as it allows markets to operate 24/7. We believe this will enable transactions not just in cryptocurrencies around the clock, but also in tokenized versions of treasuries, equities, and various other assets. It's challenging to envision this happening without tokenization, indicating a clear opportunity for us. An increase in trading hours and days is beneficial for our business. There’s also a potential in tokenizing stablecoins, which supports continuous payment capabilities, such as during weekends or late at night. This expanded activity in stablecoin payments is likely to lead to a variety of demand for related services, further benefitting us. Regarding concerns about a complete shift to tokenization potentially disrupting clearing systems, I am somewhat skeptical. I believe that much of the activity will still need to be cleared on exchanges. If we can receive cash more quickly, that is advantageous. Additionally, for extensive data sets like those handled by clearinghouses, I don’t see how tokenization would offer significant benefits, as managing an increasing number of nodes may not yield economies of scale. While changes to exchanges and their ecosystems are possible, we don't currently view them as imminent. Instead, we're focused on numerous opportunities that we are prepared to seize, leveraging our organizational agility. Importantly, we have established relationships with some of the most advanced players in the field, collaborating with them on immediate needs that they find valuable and are willing to pursue at scale.

William Katz, Analyst

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, Chief Strategist and CEO of Capital Markets

Thank you, Bill. Regarding the progress with our acquisitions, including the ones we have completed, Aarna, now Marex Abu Dhabi, is on track and aligns with our expectations. The Hamilton Court acquisition has exceeded our expectations and they experienced a record month in October. We are beginning to see the advantages of integrating that into our broader client base, which should lead to improved margins. Currently, margins are in the high 20s to low 30s, and I expect this will enhance with revenue growth as they become more integrated into the larger platform. Winterfloods should exhibit a similar trend; while we don’t have all the details yet, it appears they had a very strong last quarter, likely one of their best in the past three years. We are optimistic about the momentum building in that business. However, we expect to start with relatively low margins and don’t anticipate high 20% or 30% profit before tax margins. From a return on equity perspective, it should be quite beneficial. Valcourt is smaller, but we are seeing added value from the accounts opened, even though it won’t significantly impact profit or margin. Overall, we are seeing an improvement in margins across the board, although the lowest margins still come from the Agency and Execution excluding Prime. This area stands to gain from new desks becoming established. We have recently become more active in credit and FX, so I anticipate some margin improvement from the low to mid-teens into the higher teens, which will contribute to the overall improvement in the group's margins due to the significant revenue they generate.

Ian Lowitt, Group CEO

For clarity, we haven't closed Winterflood yet as we are waiting for regulatory approval. We are currently engaging with some of the team there and learning more about their business, but the deal is not finalized. We hope to close this year; however, if that doesn't happen, we anticipate it will close early next year. Regarding 2026, we expect margins to improve, but we are not aiming for a dramatic increase as we are still investing in the business. We believe this is the right strategy for our long-term success. While we hope for margin improvement, especially from the initiatives Paolo mentioned and other projects within the firm, we don't foresee significant changes because the business mix doesn't shift quickly. We also want to keep investing in support, control, and opportunities that are likely to yield future returns. Therefore, while we expect margins to improve in '26, we don't anticipate a dramatic enhancement.

Operator, Operator

Your next question comes from the line of Ben Budish with Barclays.

Ian Lowitt, Group CEO

Ben?

Operator, 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, Analyst

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, Group CEO

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, Chief Strategist and CEO of Capital Markets

We are monitoring all of these issuances closely, and while the prices are appealing, we don't have an immediate need to issue. We have a maturity in 2027, giving us some time before we need to make a decision, but we are certainly keeping an eye on that market.

Ian Lowitt, Group CEO

Yes. Regarding ROE, I believe we can maintain levels around 25% to 30%. We don't specifically manage to this target, but I feel comfortable with the amount of excess equity we're carrying, which is beneficial and provides us with options. We could increase our ROE by reducing our equity, but I think maintaining this equity is essential for supporting the firm's growth. We're comfortable with this approach. Given our operations, which primarily involve supporting flow rather than holding positions, this activity naturally yields a high ROE. I hope and expect that we will continue to operate within the 25% to 30% range.

Carlos Gomez-Lopez, Analyst

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, Group CEO

Yes, I think that one of the things that happens with a short seller report is that class action lawsuits tend to follow. Our lawyers in New York are very confident they can get those dismissed as they are not based on solid ground. The associated costs are not significant, and at this moment, it seems more like a distraction and a nuisance than anything else. I wouldn't read too much into it. It's a typical outcome, as the same law firm tends to pursue these short reports and file these class action lawsuits. While we can't predict exactly how it will unfold, based on the advice we've received so far, it doesn’t seem to be significant.

Carlos Gomez-Lopez, Analyst

Very clear.

Ian Lowitt, Group CEO

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, Operator

This concludes today's call. Thank you for attending. You may now disconnect.