TheChek News Flow

Country’s biggest lender will have to share benefits of Berlin’s ambitious spending plans with other European banks

A Deutsche Bank board member once admitted that the lender used to get cheaper funding because investors mistook it for Germany’s central bank. Now, as investors seek winners from Chancellor Friedrich Merz’s ambitious spending plans, Deutsche is benefiting from a similar effect.

Shares in Germany’s biggest bank are up almost 80 per cent so far this year, making it one of the biggest beneficiaries of the Dax index’s recent rally. The long-troubled lender is on the brink of eliminating its discount to book value for the first time since 2008.

Things could get better still, chief executive Christian Sewing believes, thanks to Merz’s so-called “fiscal bazooka”. The logic, persuasive enough, is that this could lift customer deposits while increasing demand for loans and capital markets services. Germany’s GDP could be 2.5 per cent higher by 2035 because of extra infrastructure spending, the European Commission thinks; bank profit ought to expand by multiples of that.

The trouble is, those benefits will also be shared with companies that don’t have “Deutsche” in their names. Others in line for Germany’s fiscal buffet include Italy’s UniCredit and Dutch lender ING. As well as their direct exposure to German companies, UniCredit chief Andrea Orcel recently told investors that any expansion should “have a very strong carry-over on other markets”.

Banks such as Erste and KBC serve companies in central and eastern Europe that are key to supply chains, while capital markets activity from larger corporations would help continental players such as BNP Paribas and Santander.

Enthusiasm has carried Deutsche’s stock so far that it looks expensive compared with rivals. Sewing’s bank now trades at a premium to peers with similarly large deals and securities businesses such as Barclays and BNP, despite a narrower focus on fixed income trading and weaker profitability. 

Even on the important metric of return on tangible equity, which Sewing has rebuilt admirably since taking charge in 2018, rivals are doing better. Deutsche is expected to make a 12 per cent return by 2029, according to Visible Alpha, versus 9.6 per cent this year — but that is still lower than the equivalent forecasts for Barclays and BNP.

That makes it hard to see how Deutsche’s valuation can go much higher. Only about a third of analysts tracked by Bloomberg give Deutsche’s stock a buy recommendation, the lowest proportion since 2022 and the weakest among the 10 largest banks in the Stoxx Europe Banks index. German neighbour Commerzbank, which has been on a similar rollicking rally, is one of the only large banks even less popular with analysts.

Sewing has a chance to convince sceptics at a strategy update next month. His lender would need to lift earnings by a third over the next four years just to keep up with consensus expectations — doable, assuming stimulus efforts really get off the ground.

He may find an extra lift comes from the resurgence of animal spirits around Europe. The bloc’s investment banking fees fell in the first half of the year — and Deutsche only claimed about 4 per cent of them, according to LSEG. But if Merz’s bazooka stokes a risk-taking revival among executives, Sewing has a chance to fight for a bigger share of a growing fee pool, assuming his own aim is up to the task.

Giorgia Meloni’s administration would hit EU target a year earlier than anticipated due to bumper tax revenues

Prime Minister Giorgia Meloni’s government expects Italy’s public deficit to fall to 3 per cent of GDP this year due to stronger than expected tax revenues, potentially allowing Rome to exit the EU’s excessive deficit procedure a year earlier than anticipated.

While finance minister Giancarlo Giorgetti had expressed hopes of such a performance in recent public comments, Rome has now officially estimated that its 2025 deficit will drop to 3 per cent, compared to the 3.3 per cent of GDP it had originally forecast. 

The latest projection was included in a public finance planning document that was submitted to the Italian parliament on Thursday night, as part of preparations for hammering out the details of next year’s budget.

Italy’s tax revenues between January and July rose 5 per cent compared to the same period last year, bringing an additional €16bn into state coffers, a jump that economists say reflected robust job growth and inflationary pressures.

However, the European Commission will not assess whether Italy remained within the EU’s 3 per cent deficit threshold until spring 2026, once actual full-year data is available. 

Italy entered the procedure in 2024, which carries an economic stigma and could eventually result in financial sanctions from the EU.

If it does exit the excessive deficit procedure, the finance ministry said it would begin to draw on European funds — of up to €12bn by 2028 — for investment in defence.

While the declining deficit is seen as cause for cheer, economic growth remains muted, despite the massive injection of European funds from the EU’s Covid-19 recovery programme, of which Italy is the largest single recipient.

In its projections on Thursday, Meloni’s government estimated that the Italian economy will grow just 0.5 per cent this year, as exporters wrestle with the impact of US President Donald Trump’s tariff blitz. 

Economic momentum is expected to pick up slightly over the next few years, however, with the government projecting an expansion of GDP growth of 0.7 per cent in 2026, 0.8 per cent in 2027 and 0.9 per cent in 2028.

Though Italy was once seen as Europe’s byword for fiscal profligacy, Meloni’s government has been lauded for its efforts at fiscal discipline, which has helped to sharply lower the spread between Italian and German debt — and eased Rome’s borrowing costs.

However, Francesco Giavazzi, who served as economic adviser to former prime minister Mario Draghi, said Italy’s improved public finances had been enabled by inflationary pressures and came at the cost of the purchasing power of many households.

Inflation, he said, had led to many Italians obtaining pay rises that in turn pushed them into higher tax brackets, resulting in what he called “tax bracket creep”. 

“The people are paying for this because they are paying more taxes,” Giavazzi said. “It’s a fiscal correction equivalent to one implemented by raising taxes, but it’s a hidden one because the people don’t see it. It’s not a law passed in parliament — inflation does the job for you.”

With their higher nominal pay, many Italians have also lost access to various subsidies and benefits for the poor, further relieving pressure on the public coffers, but weighing on household incomes. 

“An increase in taxes doesn’t help growth so it’s not surprising that the growth is 0.5,” he said.

In the upcoming budget, Meloni’s coalition government is expected to cut the tax rate for people on middle incomes who earn between €28,000 and €50,000 from the current rate of 35 per cent to 33 per cent.

“We aim to increase families’ spending capacities, in order to bring more serenity to households and boost domestic consumption,” Marco Osnato, who belongs to Meloni’s Brothers of Italy party and chairs the parliament’s finance committee, told the Financial Times.

New approach to credit scoring data could reshape US home lending

Shares of Equifax and Experian sink after Fair Isaac Corp moves to sell its ratings directly to industry data groups

The US company behind Fico homebuyer credit scores revealed plans to sell its ratings directly to industry data companies, thumping the shares of the credit bureaus that typically sell their widely watched numbers.

The move has the potential to disrupt what for decades has been a bedrock of US mortgage lending, but could also ease some of the pressure that Fair Isaac Corp has come under from US government officials who have called it a “monopoly”.

Fair Isaac Corp, based in Bozeman, Montana, said on Wednesday after the market close that it would sell the programme to calculate Fico scores directly to so-called tri-merger resellers, which compile data from the three main credit bureaus — Equifax, Experian and TransUnion.

“Today marks a turning point in how credit scores are delivered and priced across the mortgage industry,” Fico chief executive Will Lansing said. “This change eliminates unnecessary mark-ups on the Fico score and puts pricing model choice in the hands of those who use Fico scores to drive mortgage decisions.”

The numbers from credit bureaus are an important factor in whether a lender will make a loan. Fico scores aim to predict the likelihood that a borrower will repay their mortgage.

Typically, credit bureaus gather customer borrowing data and use Fico’s software to calculate a score for lenders to gauge the credit worthiness of a potential homebuyer.

Fico shares closed 18 per cent higher on Wall Street, taking the group’s market capitalisation to almost $43bn.

Shares of the credit bureaus fared poorly. On Wall Street, Equifax dropped almost 8.5 per cent, while TransUnion was down 10.6 per cent. London-listed Experian fell more than 3 per cent.

Analysts predicted that the move would ease pressure on Fico from the Federal Housing Finance Agency, the government agency overseeing mortgage lenders Fannie Mae and Freddie Mac.

FHFA head Bill Pulte had previously criticised Fico as a “monopoly who has ripped off Americans for decades”.

Jaret Seiberg, a financial research analyst at TD Cowen, said Fico’s new direct licensing move “should reduce the government pressure on Fico’s pricing”.

“That likely takes off the table more radical actions such as using Fannie and Freddie to limit how much Fico may charge or convincing the Justice Department to investigate the company on antitrust grounds,” Seiberg wrote in a note to clients.

Following Fico’s announcement, Pulte posted on X that he appreciated the company “taking Constructive Criticism, which was given in the spirit of ensuring a competitive and safe and sound market”.

Fico said firms still have the choice to work through the credit bureaus.

Influx of younger, more well-off immigrants to French capital leads to upgrading, expansion of Chinese dining options

A set of heavy Chinese wooden doors, slightly incongruous with the classical European streetscapes most associated with Paris, separates Sun Yiwen’s restaurant from the wine and cheese vendors that are traditional culinary landmarks in the French capital.

Visitors crossing its threshold find themselves transported to a world of kaochuan – seasoned meat skewers popular in northeastern China – grilled chicken ribs and frozen pears.

Her restaurant, Tonton Mao – “Uncle Mao” in French – is one of many new establishments rapidly expanding the Chinese culinary footprint in Paris.

The gastronomic capital of Europe now has plenty to offer gourmets searching for authentic Chinese cuisine, reflecting the arrival of a new generation of young, well-off immigrants and the country’s improving image in France.

“Unlike before, Chinese restaurants in Paris now target a different customer group; there are a lot more young people in the city,” Sun said.

Her restaurant’s kaochuan is prepared by chefs flown in from Shenyang, the capital of northeast China’s Liaoning province, and its decor harks back to China in the 1920s and 1930s.

Most Chinese restaurants in France opened by previous generations of immigrants were called traiteurs – caterers in French – and resembled the Chinese restaurants found in the United States or the United Kingdom, offering affordable buffet-style Chinese food adjusted to Western tastes.

At that time, thanks in part to French media reports, there was a general perception of Chinese people being poor and running dirty, chaotic kitchens.

“When I was young, French media did many documentaries on poor Chinese immigrants coming to France, many through the former French colonies in Southeast Asia,” said Julien Tan, a third-generation French-Chinese born and raised in Paris.

These stereotypes were a detriment to immigrant business owners; Tan said he remembers the views of the French public towards Chinese restaurants decades ago, when his parents opened a restaurant in Paris that sold authentic regional cuisine – a rarity in those days.

But now, he said, a new generation of Chinese immigrants is changing things.

China was the third-biggest source of foreign students in France last year, with over 26,000 students studying in Europe’s second-biggest economy, behind only Morocco and Algeria, according to data from Campus France, the national agency that promotes French higher education internationally.

This cohort grew up during China’s economic boom and remain in touch with their country’s culture. With clear memories of home, they demand the same quality level of Chinese food when they are in Paris, creating a new standard for the city’s restaurants to meet

Chen Ruohan is one such student. She arrived in the French capital in 2022, and said she has noticed an increasing number of authentic Chinese restaurants.

Among her favourite additions to Paris’ food scene, she said, is a Chaoshan beef hotpot restaurant that opened last year.

“I’m so happy that they finally have this,” Chen said. “I wish for Paris to keep advancing down this path. Hopefully, one day we can reach New York’s level.”

China’s image has also been changing in France, especially among young fans of Labubu – the toothy, elfin dolls that sparked a worldwide craze – and cutting-edge Chinese tech products.

“There is definitely a rise in China’s soft power; it is going through what Japan went through decades ago,” Tan said. “China is turning from being poor to being chic and fascinating.”

He said locals were now more open to trying authentic Chinese food, which gives restaurateurs more room to try out things that are new and different.

But others said there is still a long way to go for China’s cuisine to reach the familiarity and admiration that others enjoy in Paris.

“In Japanese restaurants you see many French people there by themselves, while in most good Chinese places, they were brought there by their Chinese friends,” Chen said.

But for the Chinese community in the city, especially those who have been there for generations, the current boom of authentic restaurants is a long-overdue moment of pride and recognition for the community.

“The talent and potential have always been there,” Tan said. “Now, finally, they can shine.”

HMRC will no longer reap benefit of share trading in FTSE 100’s largest company

AstraZeneca’s move to directly list its shares in New York could cost the UK as much as £200mn annually in lost stamp duty, the Treasury has privately estimated.

The Cambridge-headquartered pharmaceutical group, the largest company on the FTSE 100 by market capitalisation, said on Monday that it was elevating its New York listing in a plan that would give its UK investors an indirect shareholding of the company.

The move, which has prompted further concerns about London’s status as a global listings centre, will hit state coffers as HM Revenue & Customs will no longer collect any stamp duty related to the trading of the company’s shares in the UK. Treasury officials have estimated the hit to be between £170mn and £200mn, according to people familiar with the situation.

Charles Hall, head of research at Peel Hunt, has also worked on the assumption that the government would face a “£200mn hit to stamp duty from AstraZeneca”.

“That’s a big number just from one company going and they need to be on alert for others,” he said.

Hall said that he had previously warned the government it would face this hit months earlier when there had been speculation AstraZeneca could ditch London for New York, fuelled by Sir Pascal Soriot, chief executive, describing the business as a “very American company”.

The £200mn hit comes as the UK government is urgently seeking to raise money in order to plug its fiscal hole ahead of the Budget in November. AstraZeneca’s move also comes as officials are trying to revive London’s capital markets.

Fundraising from IPOs in London has tumbled to its lowest level in at least 30 years, with less capital raised this year than even the Angolan stock exchange. A string of companies have recently shifted their listings to New York or returned to private ownership.

While AstraZeneca will retain its London and Stockholm listings, remain in the FTSE and keep its headquarters and tax domicile in the UK, the company is replacing the American depositary receipts (ADRs) that until now have given US investors exposure to the company by moving to a full US listing.

ADRs are less liquid and harder to trade than ordinary shares and the new status opens the company up to a broader pool of US shareholders. UK investors will, meanwhile, switch from registered shareholders to holders of AstraZeneca depositary interests instead.

The US does not charge stamp duty on share transactions and AstraZeneca’s circular issued on Monday revealed that because the settlement of trades will happen under the US system, buyers of its shares will not pay stamp duty.

The company’s decision comes as President Donald Trump ratchets up the pressure on the pharmaceutical industry to invest in the US and as drugmakers are locked in a fight with the UK government over pricing.

AstraZeneca’s announcement could also prompt other listed companies with big US businesses and shareholder bases to explore similar steps, equity capital markets analysts have said, which would lead to a further drop in the UK’s stamp duty revenues. 

They also warned that the ability to tap into US liquidity without surrendering FTSE status could in time pave the way for a full-scale move away from the UK for some of the country’s largest companies.

The London Stock Exchange has lobbied for a reform of the stamp duty regime, warning it hinders the UK’s competitiveness. The Treasury is set to give a stamp duty holiday to new listings on the LSE, the Financial Times reported earlier this week.

For 2023-24, Stamp Duty Reserve Tax receipts were close to £2.3bn, down from nearly £2.6bn the year prior, according to government data.

AstraZeneca declined to comment.

The government said: “AstraZeneca’s confirmation that it will stay listed, headquartered and paying tax in the UK brings long-awaited clarity and is good news for jobs, growth and innovation.

“It shows British companies can scale globally, attract international investment — including from US markets — and remain rooted in the UK.”

Aides also flagged the creation of a Listings Taskforce, which they said had been put in place to help government strategically engage with key players in the capital markets and work on ways to make the UK more attractive for listings.

Researchers find vulnerability in screening that guards access to dangerous genetic material

Bioterrorism threats are rising because of advances in artificial intelligence and synthetic biology, scientists have warned, after researchers found a “striking vulnerability” in software that guards access to genetic material used to make deadly proteins.

An international team rolled out updates to close the loophole but said it was the first “zero day” of AI and biosecurity — a term used in cyber hacking to describe a blind spot unknown to the software developer.

The news highlights the growing urgency in dealing with potential threats unleashed by the use of AI as it helps deepen and accelerate the understanding of living systems and how to change them. Experts are seeking to prevent the creation of bioweapons and synthetic organisms that could threaten life on Earth.

“AI-powered protein design is one of the most exciting frontiers of science [and] we’re already seeing advances in medicine and public health,” said Eric Horvitz, Microsoft’s chief scientific officer and senior author of the latest research, published in Science on Thursday. “Yet, like many powerful technologies, these same tools can also be misused.”

The Science paper researchers carried out a test on biosecurity software used to screen customer orders by companies that sell synthetic nucleic acids.

These are deployed by the clients to build DNA that instructs the manufacture of desired proteins, the building blocks of life. The biosecurity screening is designed to block the sale of materials that could be used to make harmful proteins.

The researchers used open-source AI protein design software to generate computational renderings of more than 75,000 variants of dangerous proteins with structural tweaks — a kind of biochemical disguise. While the screening tools worked well for flagging naturally-occurring proteins of concern, they did not spot some of the altered ones, the scientists found.

Even after all but one of the companies applied the software patches, about 3 per cent of the protein variants most likely to retain hazardous functionality still passed the monitoring undetected.

The scientists worked with organisations including the International Gene Synthesis Consortium and US authorities to address the problem.

The research comes after some leading scientists have called for a systematic assessment of biosecurity screening software and improved global governance of AI-boosted protein synthesis.

High-profile biologists are also pushing for an international agreement to prevent the creation of potentially deadly manufactured “mirror” microbes, should it become technologically possible to make them.

Horvitz said there had been an “intensity of reflection, study and methodology” about the prospect that large language models could be used to further “malevolent actions with biology”.

Microsoft had incorporated such possibilities in its product safety reviews and had a “growing set of practices” about “red-teaming”, or searching for potential vulnerabilities.

The Science study highlighted a “pressing issue in protein engineering and biosafety”, said Francesco Aprile, associate professor in biological chemistry at Imperial College London.

“By introducing targeted improvements to existing software, the authors significantly enhance detection and flagging,” Aprile said. “This work provides a practical, timely safeguard that strengthens current DNA synthesis screening, and establishes a solid foundation for continued optimisation.”

Those defences must be strengthened soon because of the fast pace of technical improvements in the field, said Natalio Krasnogor, professor of computing science and synthetic biology at Newcastle University. While the aspiring bioterrorists of today would need significant expertise, time and money to actually make harmful proteins, those barriers were likely to shrink.

“We do need as a society take this seriously now,” Krasnogor said, “before additional advances in AI make the validation and experimental production of viable synthetic toxins much easier and cheaper to deploy than it is today.” 

Cucinelli highlighted his commitment to exclusivity as his company reported a 10.8 percent gain in nine-month revenues surpassing 1 billion euros.

MILAN — Brunello Cucinelli’s namesake company continued to grow for the first nine months of the year — with revenues surpassing the 1 billion-euro mark — but a conference call with analysts on Wednesday quickly veered toward its stance on distribution in Russia.

Indeed, Cucinelli and the executive team were eager to discuss Russia, admitting a board meeting was moved to Wednesday from Oct. 16 to bring further clarity on the issue. Last week, the company rejected Morpheus Research’s allegations of irregularities in its business activities in Russia. Morpheus, a short seller betting Cucinelli’s stock would fall, alleged the firm misled its shareholders and continues to operate stores in Moscow. Cucinelli shares plunged 17.3 percent upon the release of the report and, on Wednesday, the stock closed down 2.11 percent to 91.04 euros.

Speaking at the end of trading in his signature upbeat and serene way, Cucinelli said the company’s inventory is “appropriate and balanced,” consistent with the fact that ready-to-wear accounted for 85 percent of sales and that the company operates in the Russian market in accordance with EU regulations. As of Tuesday, the share of that market stood at 1.4 percent of the total, compared to 2.7 percent at the end of September 2024. In 2021, Russia represented 9.3 percent of sales.

Chief executive officer Luca Lisandroni said the company has initiated a new internal review, and has “not found evidence of any wrongdoing.” In addition, it has hired a a risk assessment agency to complete external verification.

In response to a question by an analyst, he said “we do not have information of any investigation into Morpheus.” Pressed for more details, Lisandroni said that “at the end of our checks we will evaluate how to proceed toward Morpheus.”

He said the company has been through “more than 100 constant checks also toward other countries from 2022, providing documents that have shown no anomalies.”

Managing Business in Russia

Lisandroni said that in early 2022, following Russia’s invasion of Ukraine, “we decided to tackle the situation as we did with COVID-19 to protect our partners and avoiding discounts.” In Ukraine, Cucinelli was available only through wholesale distribution, counting one franchised store and six multibrands, deciding to “support these partners, admiring their courage and determination.”

In Russia, “we had three newly renovated stores and in March 2022 we closed them and they are still closed.” The spaces dedicated to the brand within larger multibrand structures remain operational. He said that, abiding by the rule to sell goods below 300 euros, the company has two spaces directly managed by its Russian subsidiary, along with a small space dedicated solely to selling the children’s collection. The revenue generated in the directly managed spaces is accounted for within the retail channel. “We would like to clarify that exports to our Russian subsidiary went from 16.8 million euros as of December 31, 2021, to 5.9 million euros as of December 31, 2024, as reported in public financial statements,” Lisandroni said.

In Russia, retail and wholesale sales combined amount to 14.8 million euros, which is 1.4 percent of the total. Lisandroni said the business, “Like a candle, it’s slowly burning down in terms of inventory.” Likewise, the number of employees in Russia decreased to 44 from 77, as the company continues to guarantee full salaries and to honor lease agreements. “The staff from the currently closed boutiques are now engaged in one-to-one sales activities at our showroom,” Cucinelli said.

Praising Multibrands

Cucinelli enthused about the multibrand channel, which “always represented a fundamental value for our company, as we consider it an authentic guardian of the brand’s taste. The company was born with multibrand and still today relies on about 400 of the most prestigious partners worldwide.”

He listed a number of storied and established multibrands, from Saks to Isetan and Lane Crawford, which “have always proved serious and highly inspiring and respectful of the brands; difficulties have been rare and, whenever the behavior was not appropriate, the relationship was discontinued. It is natural that, at the end of the season, they may liquidate unsold items left out of [the] assortment, but they always do so with great care, fully aware that their own image is at stake as well. We believe that such episodes remain marginal and of little significance. For this reason, we confirm our trust in this channel.”

According to the argument put forward by Morpheus, the company, faced with alleged excess inventory, would have been forced to reduce its stock levels by increasing sales in the multibrand channel. This would have resulted in a subsequent increase in discounts on unsold items, which Cucinelli firmly denied as a strong believer in exclusivity.

Cucinelli acknoweldged a higher level of inventory given that the brand sells mostly ready-to-wear that is constantly updated each season, compared with brands focused on accessories or other categories.

“Within this framework, we consider an inventory-to-sales ratio of around 28 to 29 percent to be healthy, in line with the very broad structure of our collections [approximately 1,000 styles for each season and for each gender],” Cucinelli said.

“This result appears even more significant when compared with the strong growth in retail sales, which increased from 27.5 percent in 2012 to 66.6 percent in 2024.”

Lisandroni said that “such an increase could have led to a rise in the inventory-to-sales ratio on the balance sheet due to stock in directly owned stores; on the contrary, the net inventory level has remained stable, at 28.7 percent in 2012 and 28.9 percent in 2024.”

Of course, “it would have been preferable if this had not happened, but it is part of being listed on the stock exchange and of its rules. On the matter I have received countless expressions of appreciation,” said Cucinelli, who also took the time to praise Giorgio Armani, Ralph Lauren and Jil Sander during the call.

Financials

In the nine months ended Sept. 30, sales rose 10.8 percent to 1.02 billion euros, compared with 920.2 million euros in the same period last year

Cucinelli confirmed it expected revenue growth of around 10 percent in 2026 based on the spring 2026 orders and the sell-out of the winter season.

At constant exchange rates, revenues in Europe rose 8.9 percent to 370.6 million euros representing 36.4 percent of the total.

In Italy, revenues totaled 120.9 million euros, up 9.7 percent. And sales in the Americas amounted to 365.6 million euros, accounting for 35.9 percent of the total. This was a 9.2 percent gain compared with a year earlier. Lisandroni said U.S. tariffs did not affect consumer spending.

In Asia, revenues were up 15.6 percent to 283.4 million euros, representing 27.8 percent of the total.

China once again achieved double-digit growth and represents about 13 percent of revenues.

Retail revenues rose 11.4 percent to 644.8 million euros, accounting for 63.2 percent of the total.

In the third quarter, the company opened a boutique in Abu Dhabi The Galleria and a unit in IFC Shanghai Pudong.

Wholesale revenues rose 9.7 percent to 374.8 million euros, accounting for 36.8 percent of the total.

Harrods will dedicate its windows to the Cucinelli brand from Dec. 1 to Jan. 15.

Allan Brooks never set out to reinvent mathematics. But after weeks spent talking with ChatGPT, the 47-year-old Canadian came to believe he had discovered a new form of math powerful enough to take down the internet.

Brooks — who had no history of mental illness or mathematical genius — spent 21 days in May spiraling deeper into the chatbot’s reassurances, a descent later detailed in The New York Times. His case illustrated how AI chatbots can venture down dangerous rabbit holes with users, leading them toward delusion or worse.

That story caught the attention of Steven Adler, a former OpenAI safety researcher who left the company in late 2024 after nearly four years working to make its models less harmful. Intrigued and alarmed, Adler contacted Brooks and obtained the full transcript of his three-week breakdown — a document longer than all seven Harry Potter books combined.

On Thursday, Adler published an independent analysis of Brooks’ incident, raising questions about how OpenAI handles users in moments of crisis and offering some practical recommendations.

“I’m really concerned by how OpenAI handled support here,” said Adler in an interview with TechCrunch. “It’s evidence there’s a long way to go.”

Brooks’ story, and others like it, have forced OpenAI to come to terms with how ChatGPT supports fragile or mentally unstable users.

For instance, this August, OpenAI was sued by the parents of a 16-year-old boy who confided his suicidal thoughts in ChatGPT before he took his life. In many of these cases, ChatGPT — specifically a version powered by OpenAI’s GPT-4o model — encouraged and reinforced dangerous beliefs in users that it should have pushed back on. This is called sycophancy, and it’s a growing problem in AI chatbots.

In response, OpenAI has made several changes to how ChatGPT handles users in emotional distress and reorganized a key research team in charge of model behavior. The company also released a new default model in ChatGPT, GPT-5, that seems better at handling distressed users.

Adler says there’s still much more work to do.

He was especially concerned by the tail end of Brooks’ spiraling conversation with ChatGPT. At this point, Brooks came to his senses and realized that his mathematical discovery was a farce, despite GPT-4o’s insistence. He told ChatGPT that he needed to report the incident to OpenAI.

After weeks of misleading Brooks, ChatGPT lied about its own capabilities. The chatbot claimed it would “escalate this conversation internally right now for review by OpenAI,” and then repeatedly reassured Brooks that it had flagged the issue to OpenAI’s safety teams.

Except, none of that was true. ChatGPT doesn’t have the ability to file incident reports with OpenAI, the company confirmed to Adler. Later on, Brooks tried to contact OpenAI’s support team directly — not through ChatGPT — and Brooks was met with several automated messages before he could get through to a person.

OpenAI did not immediately respond to a request for comment made outside of normal work hours.

Adler says AI companies need to do more to help users when they’re asking for help. That means ensuring AI chatbots can honestly answer questions about their capabilities and giving human support teams enough resources to address users properly.

OpenAI recently shared how it’s addressing support in ChatGPT, which involves AI at its core. The company says its vision is to “reimagine support as an AI operating model that continuously learns and improves.”

But Adler also says there are ways to prevent ChatGPT’s delusional spirals before a user asks for help.

In March, OpenAI and MIT Media Lab jointly developed a suite of classifiers to study emotional well-being in ChatGPT and open sourced them. The organizations aimed to evaluate how AI models validate or confirm a user’s feelings, among other metrics. However, OpenAI called the collaboration a first step and didn’t commit to actually using the tools in practice.

Adler retroactively applied some of OpenAI’s classifiers to some of Brooks’ conversations with ChatGPT and found that they repeatedly flagged ChatGPT for delusion-reinforcing behaviors.

In one sample of 200 messages, Adler found that more than 85% of ChatGPT’s messages in Brooks’ conversation demonstrated “unwavering agreement” with the user. In the same sample, more than 90% of ChatGPT’s messages with Brooks “affirm the user’s uniqueness.” In this case, the messages agreed and reaffirmed that Brooks was a genius who could save the world.

It’s unclear whether OpenAI was applying safety classifiers to ChatGPT’s conversations at the time of Brooks’ conversation, but it certainly seems like they would have flagged something like this.

Adler suggests that OpenAI should use safety tools like this in practice today — and implement a way to scan the company’s products for at-risk users. He notes that OpenAI seems to be doing some version of this approach with GPT-5, which contains a router to direct sensitive queries to safer AI models.

The former OpenAI researcher suggests a number of other ways to prevent delusional spirals.

He says companies should nudge their chatbot users to start new chats more frequently — OpenAI says it does this and claims its guardrails are less effective in longer conversations. Adler also suggests companies should use conceptual search — a way to use AI to search for concepts, rather than keywords — to identify safety violations across its users.

OpenAI has taken significant steps toward addressing distressed users in ChatGPT since these concerning stories first emerged. The company claims GPT-5 has lower rates of sycophancy, but it remains unclear if users will still fall down delusional rabbit holes with GPT-5 or future models.

Adler’s analysis also raises questions about how other AI chatbot providers will ensure their products are safe for distressed users. While OpenAI may put sufficient safeguards in place for ChatGPT, it seems unlikely that all companies will follow suit