Earnings Call Transcript
StoneX Group Inc. (SNEX)
Earnings Call Transcript - SNEX Q4 2025
Operator, Operator
Good day, and thank you for standing by. Welcome to the StoneX Group Inc. Q4 FY 2025 earnings conference call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Dunaway, CFO. Please go ahead, sir.
William Dunaway, CFO
Good morning, and welcome to our earnings conference call for our quarter ended September 30, 2025, our fourth fiscal quarter. After the market closed yesterday, we issued a press release reporting our results for the fourth quarter and the full fiscal year. This release is available on our website at www.stonex.com as well as a slide presentation, which we will refer to during this call. The presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we are required to advise you and all participants should note that the following discussion should be considered in conjunction with the most recent financial statements and notes thereto as well as the Form 10-K to be filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve known and unknown risks and uncertainties and which are detailed in our filings with the SEC. Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the company's actual results will not differ materially from any results expressed or implied for the company's forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I'll begin with the financial overview for the quarter and we'll be starting with Slide #4 in the slide deck. Fourth quarter net income came in at a record $85.7 million with diluted earnings per share of $1.57. This represented a 12% growth in net income. However, EPS grew at a 1% rate due to the additional shares outstanding as compared to the prior year, primarily related to the issuance of approximately 3.1 million shares related to the acquisition of R.J. O'Brien. It is of note, the current quarter includes pretax acquisition-related charges of approximately $9.3 million, including $1.3 million of bridge loan financing charges and $8 million of investment banking fees which equates to approximately $0.13 per diluted share. Net income and diluted EPS were up 35% and 29%, respectively, versus our immediately preceding third quarter. This represented a 15.2% return on equity despite a 72% increase in book value over the last 2 years. We had operating revenues of just over $1.2 billion, up 31% versus the prior year and up 17% versus the immediately preceding quarter. As a reminder, our operating revenues include not only interest and fees earned on our client balances but also carried interest that is related to our fixed income trading activities. Net operating revenues, which nets off interest expense, including that which is associated with our fixed income trading activities as well as introducing broker commissions and clearing fees were up 29% versus a year ago and 20% versus the immediately preceding quarter. Fixed compensation and other expenses were up 24% versus the prior year quarter. This also represented a 14% or $36.3 million increase versus the immediately preceding quarter, with $32.4 million of this attributable to the acquisition of RJO and Benchmark during the quarter. Fixed compensation and related costs were up 23% versus a year ago and up 12% or $14.2 million versus the immediately preceding quarter. The increase versus the immediately preceding quarter was almost entirely as a result of the acquisitions I just noted. Professional fees increased $12.2 million versus the prior year, primarily as a result of the $8 million investment banking fee noted earlier. They were up $3 million versus the immediately preceding quarter with the investment bank fee just noted, partially offset by a $5.8 million decline in legal fees, primarily driven by an insurance recovery. The acquisitions of R.J. O'Brien and Benchmark contributed $22.1 million and $2.4 million in pretax net income, excluding acquired intangible amortization, respectively, for the quarter. Looking at it from a longer standpoint, our full fiscal year results show operating revenues up 20%. Net income was a record $305.9 million, up 17%, with earnings per share of $5.89 and a return on equity of 15.6% for the fiscal year, above our 15% target. We ended the fourth quarter of fiscal '25 with book value per share of $45.56 per share. Now turning to Slide #5 in the earnings deck, which compares quarterly operating revenues by product as well as key operating metrics versus a year ago. We experienced growth across all products with the exception of FX/CFDs. Transactional volumes were up across all of our product offerings with the exception of FX/CFDs and spread in rate capture increased in all products with the exception of payments down 4% and FX/CFDs, which declined 32%. Just touching on a few key highlights for the fourth quarter. We saw operating revenues driven from listed contracts increasing $89.4 million or 76% versus the prior year with the acquisition of RJO contributing $89.5 million. This also represented a 64% increase versus the immediately preceding quarter. Operating revenues driven from OTC derivatives increased 27% versus the prior year, however, declined 1% versus the immediately preceding quarter. Operating revenues driven from physical contracts increased 24% versus the prior year, primarily driven by a $19.5 million increase in physical, agricultural, and energy revenues, which were partially offset by a $6.8 million decline in precious metals operating revenues. Operating revenues driven from physical contracts were up 18% versus the immediately preceding third quarter. Securities operating revenues were up 26% as volumes were up 25% and the rate per million increased 23% versus the prior year, with the improvement driven by strong growth in both equities and fixed income. Payments revenues were up 8% versus a year ago, but down 3% versus the immediately preceding quarter, primarily due to a decline in rate per million. FX CFD revenues were down 34% versus a year ago, resulting from a 7% decline in ADV and a 32% decline in rate per million, primarily driven by low volatility in FX markets. This also represents a 36% decline versus the immediately preceding quarter. Our interest and fee income earned on our aggregate client float, including both listed derivative client equity and money market FDIC sweep balances increased $52 million or 46% versus the prior year with the acquisition of RJO contributing $50 million. Average client equity and average money market FDIC sweep client balances increased 71% and 25%, respectively. For the current quarter, the average client equity includes the effect of an incremental $5.6 billion per month from RJO for the 2 months post acquisition or an incremental $3.8 billion increase to the quarterly average. Turning to Slide #6. This depicts a waterfall by product of net operating revenues from both the prior year quarter to the current one, as well as the same for the full fiscal year periods. Just a reminder, net operating revenues represents operating revenues less introducing broker commissions, clearing fees, and interest expense. For the quarter, net operating revenues increased 29% and principally coming from securities and listed derivatives, up $48.7 million and $43.1 million, respectively. On a net basis, interest and fee income on client balances increased $28.8 million with RJO contributing $32.5 million, which was partially offset by a modest decline in legacy StoneX. As noted earlier, due to the lower FX volatility, we saw FX/CFDs net operating revenues decline $29.7 million versus the prior year. Looking at the bottom graph for the full fiscal year period. Once again, it is securities with the largest increase, up $126.1 million versus the prior year, driven by a 27% increase in ADV and a 9% increase in rate per million. In addition, listed derivatives and interest and fee income increased $46.3 million and $31.2 million, respectively, primarily as a result of the acquisition of R.J. O'Brien. Finally, physical contract net operating revenues added $34.7 million versus the prior fiscal year. Moving on to Slide #7. I'll do a quick review of our segment performance. Our Commercial segment net operating revenues increased 25% or $42.9 million, with $20 million of this being contributed by the RJO acquisition. Listed in OTC derivative contract volumes increased 32% and 27%, respectively. In addition, physical contracts increased 26%, while net interest and fee income increased 22%. The growth in listed derivatives and interest income were primarily driven by the acquisition of RJO. Segment income increased 25% versus the prior year. While on a sequential basis, net operating revenues were up 23% and segment income was up 35%. Our institutional segment saw record net operating revenues and segment income with growth of 67% and 73%, respectively. Versus the prior year, this represented growth of $117.5 million with the acquisition of RJO contributing $50.2 million. The growth in net operating revenues is principally driven by a $48.9 million increase in securities revenues. In addition, listed derivatives and interest and fee income increased $30.5 million and $20.7 million, respectively, primarily driven by the acquisition of RJO. On a sequential basis, net operating revenues and segment income were up 46% and 53%, respectively. In our self-directed retail segment, net operating revenues declined 35% and segment income was down 51%, primarily driven by a 4% decline in average daily volumes and FX/CFD contracts combined with a 31% decline in rate per million. On a sequential basis, net operating revenues were down 37% and segment income declined 62% in this segment. In our Payments segment, net operating revenues were up 7% and segment income increased 21%. ADV was up 13% versus the prior year, while rate per million was down 4%, versus the immediately preceding quarter payments and net operating revenues declined 2%, while segment income increased 7%. Now moving on to Slide #8. Looking at segment performance for the full fiscal year. We saw strong growth in our institutional segment with net operating revenues up 36% and segment income increasing 45%. In addition, our self-directed retail segment increased segment income 12%. Our Commercial and Payments segment added 1% and 4% in segment income, respectively. Finally, moving on to Slide #9, which depicts our interest and fee income on client balances by quarter as well as the table showing the annualized interest rate sensitivity for a change in short-term interest rates. The interest and fee income, net of interest paid to clients and the effect of interest rate swaps increased $28.8 million to $112.2 million in the current period, and as noted, the acquisition of R.J. O'Brien contributed $32.5 million in the net interest in the current quarter. As noted in the table, with the addition of the $6.3 billion client assets from the RJO acquisition, we now estimate a 100 basis point change in short-term interest rates either up or down would result in a change to net income by $53.8 million or $1.02 per share on an annualized basis. With that, I will turn you to Sean O'Connor, our Executive Vice Chairman.
Sean O'Connor, Executive Vice Chairman
Thanks, Bill, and good morning, everyone. It is very gratifying to see that we've achieved yet another record financial result in what is a long string of record performances. We have managed to exceed our ROE targets despite our stockholders' equity increasing by 72% over the last 2 years. It is no easy feat to continuously compound at a high rate when you're reinvesting 100% of your capital, something we have managed to do for decades now. Turning to Slide 11 in the deck. As you are aware, over roughly the last 20 years, we've been active in the M&A market, especially following the financial crisis, having now completed over 30 acquisitions during this time. During the COVID pandemic and the years immediately following, our facility was notably limited on the M&A front. The prevailing market conditions at that time were characterized by bubble-like valuations based on peak earnings for most companies active in our space as well. We chose to focus on organic opportunities and to wait for valuation demands to become more rational. 2025 was our most active year ever with us completing 6 transactions culminating in the acquisition of R.J. O'Brien, our largest ever and one we believe will be transformational for the organization. I thought it might be useful here to review our M&A approach, something that a lot of investors have asked me in calls over the last few years. We are very opportunistic around acquisitions. As an old M&A banker, I'm acutely aware that most transactions don't succeed for the simple reason that buyers are often desperate, maybe for a growth strategy, maybe a new strategy overall, new talent. And as a result, they tend to overpay. We pride ourselves on being very disciplined and we can afford to be disciplined because we have such a strong organic growth track ahead of us given the market dynamics we have spoken about previously with banks withdrawing and smaller firms being consolidated. When we evaluate a new opportunity, we always have to consider the risk and disruption that this may cause to our existing organic growth initiatives. Therefore, any opportunity needs to be compelling and accretive. We passed potential acquisitions through a number of screens. First, they need to be accretive to our ecosystem, adding either new products or capabilities or adding to our client footprints and increasing market share in existing or new markets. We then need to clearly understand how we drive value for our shareholders. Most often, that is by selling these new products and capabilities to our existing client base to drive incremental revenue, or in the case of client acquisitions, by leveraging our ecosystem of products into these new clients. Then of course, culture is all-important. We are a client-first business, and we seek to establish long-term embedded relationships with our clients. We also look at the requirement for resources and capital as well as cost structures and margins to make sure that these transactions can be quickly accretive to our bottom line and to our ROE. In many instances, we can achieve capital and cost synergies given our larger scale and global footprint. Then of course, we need to get to price. And given our desire to compound our capital, we tend to be on the conservative end of the value spectrum. We need to see how the acquisition can be accretive to our ROE and also quickly earn back any goodwill that may be incurred typically inside 36 months. I also strongly believe that we should take the leading role in due diligence rather than rely too heavily on bankers and advisers. This forces our team to roll up their sleeves and take ownership for the business we are acquiring and leads to quicker integration and synergies being achieved. Despite our strict criteria laid out above, we continue to find many good opportunities and I think our discipline and rigor on the front end have resulted in us having a very high success rate with acquisitions. Almost all have gone on to become multiples of the size they were at the time of acquisition. Turning to Slide 12. In the last several years, we get approached on around 85 to 100 opportunities per year, many of which are sourced internally by our own teams. We typically engage with around 70% of those at some level and getting to initial due diligence on around 50% and full due diligence on around 25% of those opportunities. That ends up with our submitting bids at around 15%. As you probably realize, this entails a fair amount of work and focus, and we are very lucky to have an extremely capable albeit small corporate development team who, of course, can leverage the internal expertise we have when needed. We are also likely to have an exceptional in-house legal team, which is involved in the process. We have received numerous complements over the years from our external bankers and lawyers on the exceptional corporate development and legal teams we have in-house here at StoneX. With that background, let's turn to Slide 13 and take a look at how we did in the 2025 fiscal year. As a reminder for this year, we made 5 acquisitions, and we made one strategic investment. Starting with R.J. O'Brien, which we continue to believe will be a transformational acquisition for us, RJO was one of the oldest independent FCMs in the U.S., transacting with over 45,000 clients and over 200 IBs. This acquisition has made StoneX the largest nonbank FCM in the United States and a market leader in global derivatives, reinforcing our position as an integral part of the global financial market infrastructure. This acquisition has brought us new clients in the likes of regional banks, to whom RJO provides clearing and risk management and interest rate products, a large introducing broker network, which we believe we can leverage further, almost becoming an extension of our own sales team as well as an agency execution capability where we can offer block trading and futures options and customized solutions. It was an acquisition which we also believe provides significant opportunities to improve our efficiency. As stated in our announcement, we expect there to be $50 million of expense savings and at least $50 million in capital synergies as we consolidate regulated entities. Abby Perkins from our executive team will be on this call and shortly provide an update on our integration progress with RJO. Coincidentally, we closed Benchmark on the same day as RJO. Benchmark is a midsized investment banking firm, offering a sales and trading platform, equity research, and a highly experienced investment banking team. Benchmark brought us deep relationships in the hedge fund community, which were incremental to us as well as an investment banking capability. We are looking to leverage our broader trading and clearing capabilities into these new clients and, of course, offer investment banking capabilities to our StoneX clients. Additionally, Benchmark has been able to leverage our balance sheet to take larger roles in transactions than before. Lastly, on capital synergies by leveraging the existing larger StoneX broker-dealer balance sheet, which already supports our FCM and Securities businesses, Benchmark can reduce the capital requirement for its business. We acquired the assets of JBR, a leading U.K.-based silver recovery refiner at the beginning of our fiscal year, which allows us to produce our own silver London Good Delivery bars and further extended our physical capabilities in metals. This has proven to be particularly valuable during the recent metals volatility and shortages experienced this year as we can now produce our own metal. It has also expanded our customer base by adding numerous industrial clients who see StoneX as a better capitalized counterparty and who can offer a range of storage, refining, and hedging services. In September, we announced the acquisition of Right Corporation, a physical meat trading business in the U.S. RJO has a dominant position in the meat and livestock industry in the U.S. And with this acquisition, we now bring a downstream physical capability to our clients, much like the rationale behind the very successful acquisition of CDI back in 2022, which extended our cotton derivative experience into the physical. It adds a new relationship with meat suppliers and branches across beef, pork, poultry as well as buyers in the processor and distribution space. In February, we completed the acquisition of Octo Finance, a leading French fixed income broker, which provides credit research and expertise in the trading of European bonds and convertibles. We are now able to offer the European-based clients access to our broader product mix, enable Octo to participate in larger transactions and to add credit research and expertise in European bonds and convertibles to our suite of capabilities. We have begun to cross-sell clients of Octo new products and services as well as expanding their available credit products to include investment grade, high-yield, and U.S. treasuries. Lastly, we made investments in Bamboo payments, which was accompanied with an option to acquire full ownership down the road. Bamboo brings deep expertise and a well-established in-country payment ecosystem in South America, which has extended our cross-border capabilities. Bamboo serves large regional marketplaces, ride-hailing services, and HR platforms, which are new client types for StoneX to interact with. Turning now to Slide 14. Alongside our inorganic M&A growth, we continue to iteratively improve our product and services offered organically. This has included several enhancements to our business, which extends our ecosystem and addresses additional client needs with the intent of capturing more of their business. Some of these enhancements this year include the following: the build-out of our metals vault in New York, which now has more than $1 billion of assets under custody and is a CME designated depository and custodian. It has not only been a value-add to our wholesale precious metals business but also has attracted the global banks who would like to diversify their holdings away from other competing banks. It is highly complementary to our overall metal strategy of providing a full-service offering in the market. And we are a unique industry participant in that we're both a regulated FCM and an exchange-approved depository. Towards the end of the year, we entered into 2 agreements, bringing in the business of 2 LatAm focused wealth management firms, which have expanded our capability to service clients by providing brokerage and investment advisory services. These 2 transactions bolstered our existing wealth management business, further strengthening connection into Latin America and providing us with incremental clearing opportunities. Late last year, we were approved to provide digital asset services to institutional clients in Europe. This will allow us to provide execution and custody services alongside our existing suite of global prime brokerage services and other complementary offerings, including equities, ETFs, futures, and fixed income. We have also been improving our digital offering, which provides automation of management, merchandising, and origination of grain products. This is done through our proprietary platform called StoneX Hedge. This platform integrates with existing grain elevators' enterprise systems and back-office systems, to automate and proactively manage the inventory. We announced last year that this platform has surpassed total volume of over 1 billion bushels of grain, which is a significant milestone for us. Interestingly, RJO has a similar product offering, and we will be merging these 2 platforms to provide clients with the best of the 2 offerings. In prime brokerage, we offer a comprehensive custody and clearing platform across the globe aimed at financial institutions and funds. During the year, we have made several enhancements to our service offering which have included an expansion of our capital capabilities, improving consolidated reporting and margining for clients and addition of cross-currency products to the suite. These improvements have driven increased engagements particularly among large ETF issuers and mutual funds, resulting in strong momentum for this product in this business. Lastly, regarding our OTC and structured product capabilities. As we have mentioned in previous discussions, we see OTC as a tremendous growth opportunity to help our commercial clients run more complex and intricate scenarios, determining the best products for their needs and to get quotes instantly. In the year, we have further expanded our OTC products focus on agriculture, which includes shell contracts and dairy derivatives. We believe we have one of the most comprehensive OTC platforms in the market today. These are just a few examples of our recent organic rollout of products and services, and we will continue to grow our ecosystem by launching adjacent products and services to better serve our clients. Moving back to RJO. We'd like to provide some time giving an update on the integration. As mentioned earlier, I would like to introduce one of our executives to you all, Abby Perkins who is a member of our Executive Committee. Earlier this year, we asked her to lead our M&A integration efforts, in particular, the RJO integration, given its importance and its financial impact on our company. She will be providing a more detailed update on our integration plans, actions taken, and key milestones ahead. Abby, over to you.
Abigail Perkins, Executive Committee Member
Thank you, Sean. For those I haven't met, I'm Abby Perkins. I've been with StoneX for 9 years and in finance for over 2 decades. For the past 5 years, I've served on the Executive Committee and until recently, I was the Chief Information Officer overseeing infrastructure, IT services, procurement, and cybersecurity. As Sean mentioned, I stepped into a new role leading our M&A integration efforts with the primary focus on the R.J. O'Brien initiative. This is where I'm spending the majority of my time and energy today. So to get started, please turn to Slide 16. We remain very excited by the potential value creation for StoneX from the R.J. O'Brien transaction our most transformative acquisition of 2025 and the largest one we have done in terms of deal size. As we noted in the announcement, the acquisition rationale rests on 4 pillars. First is the transformational nature of the acquisition and the significant scale we have added as a result. With this combination, we are now the largest non-bank U.S. FCM by client assets and one of the largest FCMs globally. We are seeing a positive trend in growth in balances with RJO's average client equity increasing from $5.5 billion to $5.8 billion since close principally due to inflows from ID and institutional clients. This increase has helped drive our combined client equity balances to the highest ever at $13.7 billion at the end of September. In addition, during the trailing 12 months ended September 30, 2025, RJO cleared 156 million derivative contracts, which will now be consolidated on a single combined infrastructure, so truly achieving substantial scale. And ultimately, we know that the long-term transformative value will rest on the quality of the RJO clients and its people, and both have exceeded StoneX leadership's expectations. Our second pillar was the strong opportunity to expand both our products and capabilities across the combined basis of both organizations and to reach new markets. We are seeing numerous opportunities to offer new products and services to the legacy RJO and StoneX clients alike. These include offering new OTC and physical products to existing listed derivative clients, interest rate derivatives and relative value trading strategies to fixed income clients and new hedging products and strategies to agricultural and other commercial clients. We are also quickly moving to leverage RJO's footprint in new markets with the regulated presence in the Dubai International Financial Center becoming a key focus. StoneX has had a long-standing and successful presence in Dubai, offering precious metals trading in the Emirate metal zone, and operating a branch office to retail products in the Dubai mainland zone. The addition of RJO's business in the DISC, the Emirate Financial Institution Hub, has provided a valuable complement to our efforts in this key growth market through the opportunity to compete with other financial brokerage firms by offering the full complement of StoneX products, which is an important enhancement to RJO's offering there. Lastly, we are able to achieve a combined and optimized technical ecosystem, taking the best from our world. The benefit of the StoneX complex of the combined technical offering will be significant. Our third pillar focused on the achievement of significant cost synergies. Our work since the closing of the transaction has strongly validated our cost synergy estimates, and we are working actively to achieve these cost savings. We've established a robust governance framework with a dedicated cross-functional team leading the numerous integration work streams. I will touch base more on the timelines of these cost synergies as well as an update on capital synergies on the next slide. But before we get there, one more pillar to cover. The fourth pillar is that the acquisition will be accretive to both EPS and ROE. I want to say that, first, across the board, our top priority is delivering a powerful combination that strengthens outcomes for our clients and supports both our internal and external brokers. And in line with that focus, the integration planning and progress we've achieved so far underscores our confidence that RJO will be accretive to both EPS and ROE over both the near and long term, creating lasting value for our shareholders. Moving to the next slide, we summarize our integration objectives and results. I'll be starting with our cost synergies. At the time of the transaction, we estimated $50 million of annual run rate and potential cost synergies. We now have a detailed plan with over 100 people involved in the process with over 50 defined work streams and are in full execution mode. We are first prioritizing the savings that are more readily achievable through the combination of the overlapping non-U.S. entities in the U.K., Hong Kong, France, and Singapore. This can be achieved relatively quickly as the RJO activities and business in these jurisdictions is well understood and more modest than StoneX's activities in these regions. We are also prioritizing combining our U.S. broker-dealer footprint as it is a relatively easy process as well as RJO's activities encapsulate just 1 pillar of the activities we have in our diverse U.S. broker-dealer offering. These 2 initiatives can happen relatively swiftly, and we anticipate completing them in Q2 of fiscal '26, accounting for roughly 25% of the aggregate synergy target. Our focus then turns to the integration of our 2 U.S. FCMs, the most complex of the entity combinations, which is currently being planned and will follow the non-U.S. integrations. Combination is set for around Q4 2026, while we both operate in the same system of record and the underlying products are identical, RJO has built customer tools with migration of which we need to make sure is as seamless as possible from a client perspective to ensure no revenues are lost as a result. We will err on the side of caution here and may delay if we feel it's warranted. We estimate that the merging of the 2 U.S. FCMs will account for roughly 40% to 50% of the synergy target. The remaining 25% to 35% results from the runoff of contracts and space, and as such, may take a further 6 to 12 months to fully realize. Based on our work to date, we are confident that we will achieve our targets of $50 million in run rate cost synergies within 24 months of deal close. Indeed, just 4 months from the closing of the transaction, we have realized approximately $20 million in annualized cost savings. We believe that the remainder of the cost synergies are well defined and achievable. We will move on now to capital synergies. These synergies will be achieved as we collapse the operations that we set out before. We anticipate a $20 million to $30 million release of excess capital following the first set of business integrations of the U.K. business and the broker-dealer business, which is to be realized in approximately Q2 26. The remaining capital synergies will be realized from the merger of the U.S. FCMs in the approximate fourth quarter of 2026. We anticipate this to be north of $30 million. Lastly, and in addition to this, while technically not a capital synergy, we recently executed a $42 million dividend of excess cash from the RJO parent entity, providing additional liquidity to the StoneX Group of companies. In terms of brand revenue synergies, we did not disclose a specific target because these synergies are both hard to realize in the short term, it's very hard to track when they happen as revenue gets split between teams, etc. Despite this, we continue to have a high conviction around the revenue synergies opportunity over time. A first significant driver is that StoneX's equity and balance sheet is around 5 times larger than RJO's, which should enable us to win more wallet share from the larger RJO clients. Alongside this is our position as a public company eases onboarding activities. Both of these were constraints experienced by RJO. To this end, we have already held and continue to hold numerous teach-ins and cross-desk meetings. On the fixed income side, we have seen extremely strong cross-group collaboration already, resulting in the deepening of relationships and placement of new trades in from clients of both firms. On the IB side, where RJO has a major presence, we've introduced many of these brokers and end clients to our OTC and physical capabilities. Many of them have asked for the necessary paperwork, are going through the paperwork, and many of them have signed up with our swap dealer and our physical entity. So very encouraging signs there. People don't do the paperwork if they don't see an opportunity. On the metal side, we see clients expanding the business they have with us into new products. On the negative side, there was always a risk of some revenue attrition, either due to revenue producers leaving or due to the fact that there was client duplication. At the time of evaluating the deal, this was a key consideration for us. And our view was that the client overlap was limited and thus the risk of revenue attrition was not material. We're happy to report at this stage, the overall attrition is limited. So overall, we're tracking very well against all of the metrics related to the integration of RJO. In summary, we continue to believe as a management team that the RJO transaction will prove to be transformational for StoneX and this expanded group of clients as the integration of our collective client focus, the ability to leverage our combined scale and the complementary product expertise positions us as the leading franchise around the globe. We are highly encouraged by the early results, and are pleased with and grateful to our teams affecting this work. We remain focused on executing with discipline and precision that have become the hallmarks of StoneX. In the end, the common thread across all our acquisitions is the exceptional collaboration between company leadership teams and the exceptional work being performed by a talented and dedicated employees. We are pleased with the value these transactions provide to StoneX and remain optimistic about our long-term growth.
Sean O'Connor, Executive Vice Chairman
Operator. Did we lose Abby? Operator?
Operator, Operator
It looks like we lost her, but she is still connected, sir.
Sean O'Connor, Executive Vice Chairman
Okay. Let's give it a second and see if she reconnects. Otherwise, I can finish up her comments. All right. Operator, I'll carry on. Okay. So I think Abby was talking about where we are with the IBs, so I will just follow on from there. So we've introduced many of our brokers and end clients to our OTC and physical capabilities. Many of them have asked for the necessary paperwork, are going through the paperwork, and many of them have signed up with our swap dealer and our physical entity. So very encouraging signs there. People don't do the paperwork if they don't see an opportunity. On the metal side, we see clients expanding the business they have with us into new products. On the negative side, there was always a risk of some revenue attrition, either due to revenue producers leaving or due to the fact that there was client duplication. At the time of evaluating the deal, this was a key consideration for us. And our view was that the client overlap was limited and thus the risk of revenue attrition was not material. We're happy to report at this stage, the overall attrition is limited. So overall, we're tracking very well against all of the metrics related to the integration of RJO. In summary, we continue to believe as a management team that the RJO transaction will prove to be transformational for StoneX and this expanded group of clients as the integration of our collective client focus, the ability to leverage our combined scale and the complementary product expertise positions us as the leading franchise around the globe. We are highly encouraged by the early results and are pleased with and grateful to our teams affecting this work. We remain focused on executing with discipline and precision that have become the hallmarks of StoneX. In the end, the common thread across all our acquisitions is the exceptional collaboration between company leadership teams and the exceptional work being performed by talented and dedicated employees. We are pleased with the value these transactions provide to StoneX and remain optimistic about our long-term growth. So with that, let's move to Slide 18, closing summary. This quarter was a record for us to close out what was, in fact, a record 2025. The quarter included 2 months of the RJO results as well as some of the one-off acquisition and related costs, which reduced diluted EPS by approximately $0.13 per share. The quarter saw strong results across most of our segments, especially equities, prime brokerage, and fixed income and improved results in physical commodities. We recorded $85.7 million net earnings or $1.57 in EPS with an ROE of 15.2% on book value and just over an ROE of 20% on tangible book value. We achieved another record quarter for the year with operating revenues of just over $4 billion and net earnings of $305.9 million, giving us an EPS for the year of $5.89 and an ROE of 15.6% on book value and 17.9% on tangible book value. In addition, RJO and Benchmark and our other acquisitions should be strongly accretive. And together with strong organic growth should drive our results for 2026. There has been notable growth in our client assets that we custody where the segregated funds on the exchange or through clearing and prime brokerage and storage of precious metals. This has significantly grown our recurring income stream providing a stable and predictable underpinning to our financial results. Our unique and best-in-class ecosystem underpinned by a fortress balance sheet, diverse offerings, and exceptional client service enables us to deliver innovative solutions that provide clients with market access and create long-term value. I'm very proud of the StoneX team, who continued to propel us to new heights, and we'd like to thank them for the exceptional work during 2025. I would like to thank our bankers for their support and our Board for both their support and guidance and an amazing are around StoneX team. So with that, operator, let's see if we have any questions.
Operator, Operator
Our first question comes from Jeff Schmitt.
Jeffrey Schmitt, Analyst
How are early cross-selling efforts with RJO clients progressing? I understand it's still early, but is there anything notable to report? Additionally, when can we expect your estimate on revenue synergies overall?
Sean O'Connor, Executive Vice Chairman
On the revenue synergies, I think everything is progressing as we anticipated. This process requires a significant amount of education and time for people to grasp the products and ensure their suitability for clients. People tend to be hesitant when it comes to introducing new relationships or products they aren't familiar with. This means education is crucial. There has been considerable interest from RJO in understanding our new offerings, and engagement levels are high. In some areas of RJO, we’ve noticed a significant increase in activity. For instance, on the fixed income side, we already have individuals collaborating on meetings and pitching products together, leading to actual transactions that generate revenue. As for introducing independent brokers, many have requested documentation, and several have signed it, with a few trades already completed. These developments are quite encouraging and reinforce our belief that this initiative will give us a significant boost. However, as Abbey mentioned earlier, providing a precise estimate is quite challenging because it becomes difficult to track these activities. For instance, if a client increases their treasury business with us because they appreciate our offerings through RJO, it’s tough to determine if they can be classified as a genuine customer. This makes it arbitrary to measure, and consequently, we hesitate to provide a target due to the complexity of tracking and reporting accurately. The revenue can also get divided among different groups, complicating traceability further. While I doubt we will issue a target, I do expect to see a general increase in revenue, which is what we should monitor. Bill, do you have any differing thoughts? But from our perspective, we are quite optimistic. There seems to be an accelerated interest in our new products. We are already witnessing concrete evidence of new clients trading with us and existing clients increasing their activities with us. Additionally, I believe that larger clients are now aware that we have a significantly larger balance sheet. Any previous limitations tied to RJO's size have been lifted, as we can handle larger transactions. Onboarding remains challenging for private companies due to KYC processes, but being a public U.S. company simplifies that significantly. I believe our streamlined onboarding process will drive additional revenue. I'll pause here to see if there's anything else to address.
William Dunaway, CFO
I think you summarized it well, Sean. And we'll continue to just try to point out kind of the overall growth from RJO here over these next couple of quarters and we'll be able to demonstrate some of that growth that Sean is talking about.
Jeffrey Schmitt, Analyst
Yes. Okay. That makes sense. And then it looks like there was still some weakness in precious metals trading in the quarter. Did that improve after gold was officially exempted from tariffs in September? And maybe how did you see that trend in October and November?
Sean O'Connor, Executive Vice Chairman
We received many inquiries from shareholders last quarter regarding the challenges we faced in our commercial operations, especially given the significant differences in performance. This was primarily influenced by three factors: ongoing low volatility in the agricultural sector, which has persisted into this quarter, the impact of tariffs disrupting commercial activities, and issues specific to our precious metals business. There was uncertainty around whether to export products or retain them due to tariffs causing confusion about pricing. This uncertainty led to reduced hedging activity. Additionally, our precious metals business faced challenges due to discrepancies in CME metals pricing, which caused us to account for tariffs in our dealings. Previously, CME contracts served as the main hedging instrument for precious metals, but the imposition of tariffs made this less effective. As a result, completing transactions often resulted in financial losses when closing out hedges. To mitigate this, we opted to deliver our metals directly to the CME, providing a more effective hedge despite incurring additional costs related to holding and shipping the metals. These costs significantly impacted profitability, bringing the business close to breakeven in Q3, which is uncommon for us. However, the situation has improved in Q4, and we are no longer dependent on the CME hedge, allowing us more flexibility and the potential to benefit from market dislocations. What was initially a negative scenario is evolving into a positive one for us, indicating an overall improvement as we move into Q1.
Jeffrey Schmitt, Analyst
Yes. Perfect. And if I could just slip in 1 quick one on the institutional business that the RPC for listed derivatives jumped quite a bit. I'm just curious what drove that or how sustainable that is.
Sean O'Connor, Executive Vice Chairman
Bill, do you want to take that?
William Dunaway, CFO
Sure. I'll take that. That would be the introduction, Jeff, of the RJO business. So when they came in, they were incrementally higher than what we were doing. So that's really kind of what's driving it up. I think they were incrementally about $1 higher on average on their institutional rate per contract than we were, so the combination of the 2 drove that up.
Sean O'Connor, Executive Vice Chairman
Sure. So it's kind of a business mix issue, I guess, between us and RJO.
Operator, Operator
Our next question comes from the line of Dan Fannon with Jefferies.
Daniel Fannon, Analyst
Great. So I guess just sticking with the institutional business. So the other question is just on the security side. The rate per million also went up pretty significantly quarter-over-quarter. Just curious about the sustainability of that.
Sean O'Connor, Executive Vice Chairman
Bill, do you want to handle that?
William Dunaway, CFO
Sure. I think we've discussed this a bit last year regarding the conditions we observed in equity markets, such as lower volatility and our expansion into more U.S. stocks. We anticipated reaching a low point and then experiencing growth from there, and we have observed this improvement. The fixed income sector has also seen some increased volatility with fluctuating rates. Last year, we experienced a decline in U.S. treasury activity, but now we are witnessing a widening of spreads in those markets. Overall, we have seen a positive increase in both equity and fixed income, along with a notable contribution from our prime brokerage business on the security side, which has been beneficial for our revenue.
Sean O'Connor, Executive Vice Chairman
I would say, Dan, one thing to consider is that over the past two years, we've discussed this frequently concerning both the equities and fixed income teams. This began about three years ago when we started to expand into lower margin, higher volume products. While we experienced a steady decline in the rate per million, revenue increased because we were engaging in lower margin business, which was still profitable. However, this was impacting our overall numbers. As this business grew, it continually pulled down the higher margins that we previously observed. I believe we've now reached a point where this business is substantial enough that it has balanced out, meaning the downward trend as we built the business up has leveled off. Going forward, I think market conditions will be what influences it. The shift in business mix over the last three years seems to be nearing its low point, and I hope that our results will now reflect a clearer understanding of the current market conditions affecting the business.
Daniel Fannon, Analyst
Yes, that's helpful. I have another question about the integration. I want to clarify something I heard regarding the roadmap. I believe you mentioned that approximately $20 million in expense synergies has already been achieved, and that by the middle of Q2 this year with the U.K., we should see more. Can you walk me through the anticipated amounts? If we have already achieved $20 million, does that mean there might be only $30 million left to realize, or have you increased the estimated synergies?
Sean O'Connor, Executive Vice Chairman
Yes, go ahead. Abby, you back with us.
Abigail Perkins, Executive Committee Member
Thank you for your patience. We have achieved synergies from natural movement and have been able to streamline our organization. Currently, the annualized run rate is approximately $20 million moving forward. We expect the next increase in synergies in the spring, particularly from the U.K. combinations, which will also provide capital synergies at that time. The significant benefits will materialize after completing the U.S. integrations, expected in late Q4 2026, around June, July, and August. Does that help, Dan?
Daniel Fannon, Analyst
Yes, but no change in the aggregate amount. Like I guess as you guys have gone in, do you think that $50 million is conservative? Do you think there will be more in the context of what you'll be able to save as a result of the combination?
Abigail Perkins, Executive Committee Member
We're pretty comfortable with the $50 million. We are very focused on ensuring that we do client support with added flow. There is a big chunk of the organization that is not impacted within StoneX on this. So we're pretty comfortable with the $50 million right now.
Daniel Fannon, Analyst
Okay. Cool. And then just a follow-up for you, Bill. Just looking at the balances now from an interest rate sensitivity perspective, they're higher. And as you look into next year, obviously, you've got some rate cuts. Any thoughts on the hedging strategy or other things to do to limit the impact or fluctuation from rates and the movements there?
William Dunaway, CFO
Yes, we will remain proactive, Dan, as we have in the past, seeking to secure some positions. We are considering the idea of locking in around a two-year timeframe. This approach is not new to us; we have implemented it several times over the last decade. We believe that a two to three-year window is favorable for our strategy. Therefore, we will continue to observe the market and might consider using swaps as a form of insurance for the new assets we have acquired, to establish a floor. We are also excited about leveraging RJO's capabilities, which have been effective in managing the portfolio and often exceed the one-month treasury rate, our benchmark. Our expectation going forward is to lock in some positions to maintain a floor while gradually increasing our performance above the one-month target. We will not hedge or lock in everything, but we aim to be active in securing floors to protect against downside risks.
Sean O'Connor, Executive Vice Chairman
I want to clarify Bill's comments by outlining two ways to approach this. First, our contracts with clients reference the 1-month or 3-month T-bill rate, which serves as our benchmark. We typically invest any float in these rates, but RJO excels in actively managing those funds, earning a spread by investing in floaters and similar instruments. This excess basis significantly benefits us, even though it may not amount to a large sum. We aim for around 20 basis points from the float on a $13 billion basis, which could be meaningful. Secondly, we consider protecting ourselves through swaps to mitigate potential downsides in short-term rates. RJO previously locked in some of their float, around $1 billion, in the 2-3 year range, and we're now opportunistically enhancing that position when attractive rates arise. Ideally, we would hedge about 30% to 40% of our float at the 2-year rate, but we must remain vigilant as rates fluctuate. Although this approach might yield slightly lower returns due to the negative yield curve, it provides certainty regarding our revenue source. Moreover, StoneX is growing as a custodian of client assets across various channels. We're seeing clients retain more assets with us, such as in our gold custody service, allowing us to earn interest on those deposits. We have expanded into prime brokerage and equity clearing, leading to a significant increase in our asset pool. These assets generate substantial revenue, underpinning our business. While transactional revenue is influenced by volatility, it serves as an additional bonus. Achieving stability in our revenue flow as a custodian while securing costs will position us well, with more volatile revenues acting as a supplement. We're actively working towards this goal, which is an exciting development.
Daniel Fannon, Analyst
Great. That's very helpful. And just yes, it does. So lastly, just on the retail business, I know that volatility has been pretty subdued. But obviously, the fee per million or rate per million came in a lot. Anything else of note outside of just vol within that segment to think about on a kind of go-forward basis?
Sean O'Connor, Executive Vice Chairman
Well, I think this has come up a few times over the last maybe 2 years, I would say that we generally sort of budget and the way we look at the vol in this business, and I'm talking about the self-directed retail business is we look at a sort of a long-term average, right? Because the revenue capture number there can move around pretty materially. I mean, Bill, correct me if I'm wrong, but I think we are up at sort of $130 million in recent quarters as the high, right?
William Dunaway, CFO
No, we actually have been as high as $185 million back in December, but that was December.
Sean O'Connor, Executive Vice Chairman
Oh my God.
William Dunaway, CFO
That was an exceptional quarter. But if you go back a couple of years, we were $82.95 million range back in '23, '22.
Sean O'Connor, Executive Vice Chairman
So the long-term average range for us is sort of in the '80s, right? And I think over time, we've lifted that from, I think, in the game days, they were more like $75 million is what they use. And I think we've lifted that into the mid-80s, because of all the things we've chatted about, right? We're combining flow better, there's more internalization. All of that stuff is helping. But I don't think this is necessarily a bad revenue capture number. I think what's happening previously is we were outperforming a little bit on the revenue capture. So obviously, we'd like it to be a little bit higher than it is now, but this is sort of the business as it sort of has performed over the long period, maybe slightly under trend. But I think we were significantly over trend when we were sort of reporting numbers of $120 million and higher. I think that's sort of unsustainable. I don't know if that helps, but that's my thought on it. Any more questions?
Operator, Operator
I'm showing no further questions, and I would like to hand the conference back over to Sean O'Connor for closing remarks.
Sean O'Connor, Executive Vice Chairman
All right. Well, thanks, everyone. Thanks for your time. We appreciate it. We're very happy with the results that we have managed to deliver to all of you in 2025. And as you gather, I think we're all pretty excited about what's coming in 2026. We've had a busy year, a lot of great acquisitions. Obviously, RJO, very significant. I think Abbey and her team have really got their arms around that. We feel really good with the way that's tracking up, but benchmark is also doing great and some of these other acquisitions are all sort of kicking in. So we're very excited about the prospects for 2026. Looking forward to that. And with that, all I can say is to those who celebrate and are in the states, happy Thanksgiving and happy holidays to everyone. I guess, next time we speak to you will be in the new year. So thanks again.
Operator, Operator
This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.