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Tag: finance chiefs

  • A major bank has banned ChatGPT—should your company follow suit?

    A major bank has banned ChatGPT—should your company follow suit?

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    Finance and artificial intelligence aren’t like oil and water. There are areas where the two mix, like expense reporting. But when it comes to generative-A.I. applications such as OpenAI’s ChatGPT, a financial institution is taking a pass.

    This week, there have been reports that JPMorgan Chase & Co. is restricting staff from using the ChatGPT chatbot. The firm’s mandate wasn’t made in response to a certain event but part of standard controls for third-party software usage, the Telegraph first reported. JPMorgan didn’t immediately respond to my request for comment. 

    Launched in November by OpenAI, ChatGPT is a chatbot that can answer questions and can generate content on any topic you can think of, and even write articles. It’s trained to follow language and thought patterns like humans. (Read more about OpenAI founder Sam Altman here.)

    To discuss ChatGPT in the workplace, I had a chat with Vikram R. Bhargava, assistant professor of strategic management and public policy at the George Washington University School of Business, who conducts research on A.I. and the future of work.

    “I think that a lot of us, including people working in finance, were sort of stunned by the performance of ChatGPT when we first started playing around with it,” Bhargava says. “A number of employees and even banks might be tempted to use these tools to make their life a little easier,” he says. For example, asking it to come up with a relevant Excel formula for a modeling task that an analyst or an associate might do, he explains. But not fully knowing how the technology operates, “does create a little bit of discomfort in heavily relying on it,” he says.

    “The thing with banking, of course, is that it’s a very heavily regulated industry, and this technology is also new to regulators,” Bhargava says. Along those lines, Mira Murati, chief technology officer at OpenAI, told Time in a recent interview that regulators will need to get involved with ChatGPT and govern the use of A.I. in a way that’s “aligned with human values.”

    “I don’t know the specifics of the rationale behind JPMorgan’s decision, but it does strike me as prudent,” Bhargava says. “This technology is rapidly evolving. One of the difficulties is—what might be true of ChatGPT as it stands, might not be true in three months.”

    JPMorgan isn’t a novice when it comes to A.I. The bank recently ranked No. 1 in data intelligence startup Evident’s A.I. Index, the first public benchmark of the major banks on their artificial intelligence maturity. The index covers the largest 23 banks in North America and Europe. JPMorgan spends $14 billion in technology annually, of which approximately half is dedicated to investments, the firm said in an announcement.  

    “Leading in A.I. and knowing how to use A.I. responsibly, sometimes might require the firm to abstain from using the given technology,” Bhargava says. 

    Michael Schrage, a research fellow at the MIT Sloan School Initiative on the Digital Economy, spoke with finance chiefs at Fortune’s CFO Collaborative event in January about the possibilities of generative A.I. in finance. I asked him his thoughts on JPMorgan’s reported restriction.

    Schrage says he’s not certain how OpenAI currently manages, collects, and analyzes “prompts” (how you get ChatGPT to do what you want). But he suggests prompts may be an issue for a bank concerned about privacy rules, compliance, and proprietary processes. Prompts that are too detailed may inadvertently reveal information that the bank or its clients would prefer not to be shared, Schrage says.

    “In the same way that Google and Bing know what topics, themes, and names are being searched, it’s similarly probable that OpenAI is tracking the level of detail and specificity of prompts,” he says.

    Again, Schrage is not sure of how OpenAI handles and tracks prompts, but says: “It’s easy to imagine and enact ways where prompts can be anonymized, aggregated, masked, and shielded to minimize revealing sensitive information while still getting good ‘generative advice’ and insight.” I reached out to OpenAI to ask about prompts, but haven’t received a response.

    Many CFOs are already cautious and experimenting with A.I. And, it will be some time before they’d feel comfortable incorporating ChatGPT, Alexander Bant, chief of research for CFOs at Gartner, recently told me. 

    What would make financial institutions more open to ChatGPT? “They need a little bit more security in knowing how the use of this technology interacts with the current regulatory environment,” Bhargava says. But are there perhaps some tasks where a company can experiment without being reprimanded by the Securities and Exchange Commission? 

    “Let’s say there’s an entry-level employee on your team who might not write the clearest, most concise emails,” Bhargava explains. “So, using ChatGPT might facilitate clearer communication.”

    The jury’s still out on applying ChatGPT in finance, but generative A.I. isn’t going anywhere.

    Have a good weekend. See you on Monday.

    Sheryl Estrada
    sheryl.estrada@fortune.com

    Big deal

    Hyperproof, a SaaS-based compliance and risk management company, has released its 2023 IT Compliance and Risk Benchmark Report. The company found that security, compliance, and risk management professionals were more concerned with short-term, immediate threats, as opposed to handling larger-scale decisions like long-term security issues. Respondents said their No. 1 concern was cybersecurity risks (36%), followed by third-party risk (29%), and lack of support and resources dedicated to IT risks and compliance (24%). The research also found that companies are poised and ready to level up their risk and compliance management processes in the coming years. 

    Going deeper

    Here are a few Fortune weekend reads:

    “The housing market correction has already caused homeowners to lose $2.3 trillion,” by Lance Lambert

    “These are the top cybersecurity startups to watch in 2023, according to VCs,” by Lucy Brewster

    “The ‘free money’ tech investment is over and the ‘old economy’ is set to become the big winner, according to Bank of America,” by Will Daniel

    “These 5 sleep habits could add 5 years to your life, say experts,” by L’Oreal Thompson Payton

    Leaderboard

    Here’s a list of some notable moves this week:

    Sandeep Singh Aujla was promoted to CFO at Intuit Inc. (Nasdaq: INTU), the global financial technology platform that makes TurboTax, Credit Karma, QuickBooks, and Mailchimp, effective Aug. 1. Aujla has held senior finance positions at Intuit for seven years and is currently the SVP of finance for Intuit’s largest business unit, the Small Business and Self-Employed Group (SBSEG), and for Intuit’s technology organization. Michelle Clatterbuck, who has served as CFO since February 2018, plans to step down as CFO on July 31.

    Joanne Knight was promoted to CFO at Cargill, a global food corporation that provides agricultural and financial services. Knight currently serves as Cargill’s acting CFO. Before this role, she was VP of finance for Cargill’s agriculture supply chain enterprise, including ocean transportation and the world trading group. Before Cargill, Knight spent 10 years in finance, marketing, and business leadership roles at General Mills that included P&L responsibility. She also held finance leadership roles at Wachovia.

    Robert Higginbotham was appointed interim CFO at Foot Locker, Inc., effective March 1, according to the company’s form 8-K filed on Feb. 21. Higginbotham will serve in this role in addition to his current duties as SVP of investor relations and financial planning and analysis, a role he began in December 2022. The company continues to conduct a search to identify a successor to current EVP and CFO Andrew E. Page who will depart on Feb. 28. Previously, Higginbotham served as VP of investor relations.

    Ryan Clemen was promoted to CFO at SelectQuote, Inc. (NYSE: SLQT), an insurance sales agency. Clement was named interim CFO in May 2022. Before joining SelectQuote in January 2022 as the SVP of financial planning and analysis, Clement served as the CFO of Sifted (formerly VeriShip). Before Sifted, Clemen spent seven years at Edelman Financial Engines, where he served in various senior-level finance and operational roles.

    David Rudow was named CFO at Unite Us, a software company enabling cross-sector collaboration. Rudow will lead the Unite Us finance organization. He served most recently as CFO at nCino taking the company public in 2020. For more than 20 years, Rudow served in senior leadership positions, including SVP at CentralSquare Technologies and senior analyst roles for several leading investment banking and asset management firms. 

    Kevin Schubert was named CFO at Rubicon Technologies, Inc. (NYSE: RBT), a digital marketplace for waste and recycling, effective immediately. In addition to his current responsibilities as president, Schubert will now oversee Rubicon’s end-to-end financial operations. Prior to serving as the company’s president, Schubert was Rubicon’s chief development officer. Before joining Rubicon, he held senior executive and advisory roles with public companies, most recently, CFO for Ocean Park Group.

    Overheard

    “I have all the respect for [Fed Chair Jerome] Powell, but the fact is we lost a little bit of control of inflation.”

    —JPMorgan Chase CEO Jamie Dimon said in an interview during CNBC’s Halftime Report.

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    Sheryl Estrada

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  • CFOs brace for a long and deep recession—in the U.K.

    CFOs brace for a long and deep recession—in the U.K.

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    With a looming recession in the U.K., debt finance is highly unattractive to CFOs.

    Some countries will be hit harder by a recession than others as the global economy is expected to contract this year, but the U.K. is in trouble. A Financial Times survey released on Monday found the U.K. is facing a “deeper and more prolonged recession” than any nation in the G7, a global policy forum representing seven of the world’s most advanced economies, Fortune reported. About four-fifths of economists said the U.K. will experience a much longer recession than its peers. They predict a rough 2023 and a potential return to normal by 2024.

    “The U.K. suffers from an energy shock as bad as Europe’s, an inflation problem…as bad as the U.S., and a unique problem of lack of labor supply from the combination of Brexit and the NHS crisis,” Ricardo Reis, a polled economist and professor at the London School of Economics, said in the report.

    Corporate distress has accelerated faster in the U.K. than in the rest of Europe and reached a two-year high, according to the recent Weil European Distress Index.

    A key finding of Deloitte’s UK CFO Q4 2022 survey released on Tuesday found CFOs view bank borrowing and debt issuance as the least attractive it has been since the financial crisis. As interest rates are at 3.5%, finance chiefs rate credit as being more expensive than at any time since 2009, according to the report.

    “When interest rates were at very low levels, debt finance easily eclipsed equity as a source of finance,” Ian Stewart, chief economist at Deloitte, said in a statement. “CFOs now see them as being roughly on par.”

    Seventy percent of CFOs rate credit as costly, meanwhile 45% say that new credit is hard to get. Just 28% say they expect their company’s demand for credit to increase over the coming 12 months. However, Stewart also noted that CFO “concerns about energy supply and prices have fallen back,” he said. The findings are based on a survey of 78 CFOs participated, including those at FTSE 100 and FTSE 250 companies.

    The Office for National Statistics reported last month that Britain’s inflation rate in November was 10.7% down from a 40-decade high of 11.1%. On average, CFOs  believe inflation will fall to 5.8% in a year’s time. However, in two-years, they expect it to stand at 3.3%, which is above the Bank of England’s 2% target. 

    In late September, the U.K. experienced market turmoil after government proposed tax-cutting plans sent bond and currency markets spiraling. If the U.K. markets are any indication, due to this macroenvironment, the era of putting in place fiscal stimulus, cutting taxes, and greatly replacing lost income without inflation or rising interest rates being a major concern could be over. A prolonged recession in the U.K. may have some implications for the U.S. 

    Deloitte’s Q4 report on the sentiments of CFOs in North America released on Dec. 14, found net optimism of finance chiefs for their own companies fell for the third quarter in a row, and the lowest level since Q2 2020. The talent crunch also remains major concern.

    Each quarter, Deloitte tracks a series of metrics around CFO expectations in revenue, earnings, dividends, cap spending, domestic hiring, and domestic wages, Steve Gallucci, the global and U.S. leader of Deloitte’s CFO Program, told me last month. “When you look at fourth quarter 2022 versus third quarter 2022 all those measures came down,” he said. The biggest declines were in year-over-year growth expectations for revenue and earnings at 4.2% and 2.9%, respectively, down from 6.2% and 6.4% in Q3.

    “Cost management going into 2023, with the continued uncertainty in respect to inflation, is going to be critical,” Gallucci said. 

    In the U.S., consumer prices rose 7.1% in November from a year ago, down from 7.7% in October and a high of 9.1% in June. In December, the Federal Reserve announced a 0.50 percentage point interest rate hike, its seventh rate hike in an effort to tame inflation. The minutes from the Fed’s meeting Dec. 13-14 meeting were released on Wednesday. “Participants stressed that the committee’s ongoing monetary policy tightening to achieve a stance that will be sufficiently restrictive to return inflation to 2 percent is essential for ensuring that longer-term expectations remain well anchored,” according to the document.

    CFOs across the globe are undoubtedly preparing for what many are predicting to be a roller coaster year.

    See you tomorrow.

    Sheryl Estrada
    sheryl.estrada@fortune.com

    Big deal

    The burden of debt repayments rose for U.S. companies in the third quarter of 2022, according to a new S&P Global Market Intelligence report. The median interest coverage ratio fell from 8.98 to 8.19 in the third quarter of 2022. This metric tracks the ability of companies to cover interest payments on their debt by dividing earnings before interest and taxes by the cost of debt-interest payments of companies rated BBB- or higher by S&P Global Ratings. The decline breaks “a near-continuous increase” in the ratio since the second quarter of 2020. This indicates that “companies are feeling the pinch of rising borrowing costs and a weaker economy,” according to S&P Global Market Intelligence.

    Courtesy of S&P Global Market Intelligence

    Going deeper

    Willis Towers Watson’s (WTW) annual analysis of the funded status of the nation’s largest corporate pension plans found the 10-year march toward full funding lost momentum in 2022. The funded status ended 2022 at 95%, the same level it began the year as weak investment returns offset lower pension liabilities created by higher interest rates, according to WTW. The funded status had been rising steadily since 2012 when it stood at 77%. The findings are based on an analysis of pension plan data for 356 Fortune 1000 companies that sponsor U.S. defined benefit pension plans and have a December fiscal year-end date. Overall investment returns are estimated to have averaged -19% in 2022, although returns varied significantly by asset class, WTW found.

    Leaderboard

    Tom Boyle, CFO, has been appointed to also serve as chief investment officer at Public Storage (NYSE: PSA), an owner, acquirer, developer, and operator of self-storage properties, effective Jan. 1, Boyle’s additional role as chief investment officer will include development, redevelopment, acquisitions, asset management, and third-party management. He joined Public Storage in 2016, serving as CFO of operations, until his appointment as the company’s CFO in 2019. Before joining Public Storage, Boyle served in roles of increasing responsibility with Morgan Stanley since 2005, from analyst to his last role as executive director of equity and debt capital markets.

    Zahir Ibrahim was named CFO at BARK, Inc. (NYSE: BARK), e-commerce and content company for dog lovers, effective immediately. Most recently, Ibrahim served as CFO and chief administrative officer at the startup Do Good Foods LLC. Before to that, he served as CFO of KIND LLC, a healthy snacks company. Ibrahim also previously served as CFO at Annie’s Inc., a natural and organic food company. He also held several roles at Molson Coors Brewing Company culminating with VP, controller, and chief accounting officer. Earlier in his career, Ibrahim served in senior financial positions at CML Innovative Technologies, and Elementis Specialties, and Pirelli Tires.

    Overheard

    “The environment remains challenging, and our customers are taking a more measured approach to their purchasing decisions. With this in mind, we’ve made the very difficult decision to reduce our workforce by about 10%, mostly over the coming weeks.”

    —Salesforce cofounder and CEO Marc Benioff wrote in an email to staff on Wednesday, Fortune reported. U.S.-based employees affected by the layoffs will be entitled to five months of pay as well as insurance, career resources, and other benefits during their transition.

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    Sheryl Estrada

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