MOST NOTEWORTHY: AbitibiBowater, GlaxoSmithKline, AstraZeneca and Capital One were today's noteworthy downgrades:

• Lehman downgraded AbitibiBowater (NYSE: ABH) to Equal Weight from Overweight citing dilution from the recent $350M convertible offering, cost pressures, and a more cautious outlook near-term for pulp markets.
  
• JP Morgan cut GlaxoSmithKline (NYSE: GSK) and AstraZeneca (NYSE: AZN) to Underweight from Neutral on long-term earnings growth concerns.
  
• Keefe Bruyette lowered Capital One (NYSE: COF) to Underperform from Market Perform to reflect the company's credit outlook.

OTHER DOWNGRADES:

• Nokia (NYSE: NOK) was downgraded to Neutral from Buy at UBS and to Underweight from Overweight at JP Morgan.
  
• Textron (NYSE: TXT) was cut at Credit Suisse to Neutral from Outperform.
  
• Merriman downgraded Blue Coat Systems (NASDAQ: BCSI) to Neutral from Buy.

Andrew Horowitz, is a money manager and author of The Disciplined Investor. He discusses COF in the most recent episode of The Disciplined Investor Podcast

In an 8-K release this morning, Capital One Financial Corp. (NYSE: COF) reported a 13.7% increase in the monthly charge off rate for the U.S. card segment as compared to the December, 2007 report. As has been predicted, global credit card debt has been rising at an alarming rate. The most recent announcements of a 40% workforce reduction for Capital One's U.K. unit once again displays how "predatory lending practices" have now come back to haunt those companies that have been playing with financial-fire. As the Capital One Management was working on keeping credit card customers, they did not realize that that same level of loyalty would eventually come back to bite them in the asterisk. (Chart from 2007 COF Investor Conference)

When looking at the total picture, Capital One's $505,083,000 monthly principal write-off is becoming more and more concerning as we are continuing to witness a global economic contraction. Consumers are spending less as they have greater worries about their shrinking wallets...Right? They (we) are also becoming painfully aware that the housing slowdown is not going to be a short-lived phenomena. As their home values continue to fade, they are looking for alternative ways to pay for their everyday living expenses. This has led most to the only alternative they have to feed and clothe their family: The Credit Card in the wallet and the ones in the back of the drawer.

Now, as the "almost-affirmed" recession is upon us, delinquencies will rise along with foreclosures and bankruptcies. This will surely trickle down to the lenders as the inflows they receive dwindle, outflows grow and non-recoverable debt increases. While a 6% rate may seem historically high, back in 2003, Capital One posted rates closer to 8% as the U.S. was starting on the road to recovery from a difficult 2 years of recession and the fall off from the domestic stock markets averaging near -50%. The same predicament is what lies ahead as the stock market losses are substituted by housing losses. Even though property values may appear to be "on paper" the physiological wealth effect (or is it defect?) still hurts consumer confidence. All of this leads us back to an ever increasing problem with consumer credit.

Capital One Financial Corp. (NYSE: COF) shares are trading higher this morning on news that yesterday evening's Visa (NYSE: V) IPO raised almost $18 billion. COF offers credit and debit card services co-branded with Visa. Visa this morning has soared above the pricing at $44 from yesterday and is currently around $60. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on COF.

After hitting a one-year high of $82.25 in June, the stock hit a one-year low of $37.41 in January. COF opened this morning at $51.65. So far today the stock has hit a low of $50.89 and a high of $54.46. As of 11:55, COF is trading at $51.85, up $0.36 (0.7%). The chart for COF looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in just one month as long as COF is above $40 at April expiration. Capital One would have to fall by more than 22% before we would start to lose money.

MOST NOTEWORTHY: Certain banks, VASCO Data Security and Bankrate were today's noteworthy downgrades:

• UBS downgraded shares of Discover (NYSE: DFS) and Capital One (NYSE: COF) to Sell from Neutral and American Express (NYSE: AXP) to Sell from Buy, as they believe a U.S.-led recession will lead to increased credit losses.
• Jefferies downgraded shares of VASCO Data Security (NASDAQ: VDSI) to Hold from Buy to reflect the company's exposure to the financial services market, as they believe 2008 will be a tough year for small companies selling into tightening IT budgets.
• Merriman lowered its rating on Bankrate (NASDAQ: RATE) to Neutral from Buy on valuation, as they believe the stock is pricing in upside from strong website traffic seen in January driven by refinance activity and Fed rate cuts. Citigroup downgraded shares to Hold from Buy on valuation, as they find the risk/reward less compelling at current levels.

OTHER DOWNGRADES:

• JP Morgan removed SanDisk (NASDAQ: SNDK) from its Top 3 Picks List.
• Goldman downgraded CSK Auto (NYSE: CAO) to Neutral from Buy and removed Google (GOOG) from its Conviction Buy List.
• Baird lowered Comerica (NYSE: CMA) to Neutral from Outperform.

The management at American Express (NYSE: AXP) must have hoped that its relatively high-end card holders might dodge much of the economic slowdown. It was not to be. According to The Wall Street Journal, "the card company said yesterday that it would take a $440 million pretax charge against fourth-quarter earnings as it sets aside more money to cover soured loans." The news and a warning from Capital One (NYSE: COF) showed that credit problems have moved beyond the mortgage market and into consumer credit.

American Express described its problems as "broad-based and sudden." So, part of the financial industry says the consumer pulled in very sharply in December, a sign that GDP may have already begun shrinking at the end of last year.

The consumer was the economy's last, best hope. He was needed to drive revenue in the retail and consumer goods markets. It appears now that his hibernation has begun in earnest.

Douglas A. McIntyre is an editor at 247wallst.com.

Capital One Financial Corp. (NYSE: COF) stock is falling this morning after the credit-card company said today that its 2007 earnings will not meet previous estimates, citing increased loan delinquencies and additional legal reserves in the fourth quarter. The company said it will take a $1.9 billion provision for loan losses in the fourth quarter, raising fears that the subprime mortgage crisis has hurt other credit classes. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on COF.

After hitting a one-year high of $83.84 in February, the stock hit a one-year low of $41.23 yesterday, which it has broken this morning. This morning, COF opened at $40.42. So far today the stock has hit a low of $38.85 and a high of $41.71. As of 10:45, COF is trading at $41.04, down $2.37 (-5.5%). The chart for COF looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in 5 weeks as long as COF is below $50 at February expiration. capital One would have to rise by more than 22% before we would start to lose money.

Target (NYSE: TGT) is trading down over 2% on disappointing December sales.

Macy's (NYSE: M) is up over 2% on strong same-store sales numbers.

Merrill Lynch (NYSE: MER) is off 3% on news that the investment bank may have to raise more money.

Capital One (NYSE: COF) is off about 9% on a downward revision in earnings.

Stocks may trade differently in the pre-market than they do in the regular session.

Douglas A. McIntyre is an editor at 247wallst.com.

Capital One (NYSE: COF) announced that it expects to report earnings for the fourth quarter of 2007 of about 60 cents per share (diluted) and full year 2007 earnings of about $3.97 per share, below its prior expectation of "about $5.00 per share." According to CNN Money, the company "said it is taking a $1.9 billion provision for loan losses in the fourth quarter, including about $1.3 billion in charge-offs."

The news is particularly bad for those who had hoped default rates would be largely contained to the mortgage sector. Capital One is a significant provider of credit cards and auto loans.

There has been some hope that the consumer could help keep the economy afloat, if he was not stretched too thin. It appears that the final buttress that might hold GDP up is falling apart.

Douglas A. McIntyre is an editor at 247wallst.com.

TheStreet.com's Jim Cramer says the fresh troubles for IndyMac make it more imperative for the Fed to act.

We keep coming close to losing these companies that are fighting for their lives.

Yesterday we had First Marblehead (NYSE: FMD) (Cramer's Take) on student loans.

Is CIT (NYSE: CIT) (Cramer's Take) next with its student loan portfolio (as opposed to its mobile home portfolio and its subprime portfolio...sheesh!)?

We obviously had a giant problem with MBIA (NYSE: MBI) (Cramer's Take) over the amount of capital it needs to raise. Will it have to raise capital and cut the dividend?

MOST NOTEWORTHY: The mortgage finance sector, Applebee's, Fuel-Tech, BHP Billiton, Anglo American and Rio Tinto were today's noteworthy downgrades:

• Lehman downgraded the mortgage finance sector to Negative from Neutral citing the potential of over $100B in losses for the group in the coming years. Washington Mutual (NYSE: WM) was downgraded to Equal Weight from Overweight; IndyMac Bancorp (NYSE: IMB) and Countrywide Financial Corporation (NYSE: CFC) were downgraded to Underweight from Equal Weight.
  
• Applebee's International (NASDAQ: APPB) was downgraded to Underperform from Market Perform at Wachovia, as the firm sees potential downside risk if the company's acquisition of IHOP Corp (NYSE: IHP) does not go through, following mixed reviews from Proxy firms.
  
• Merriman downgraded shares of Fuel-Tech (NASDAQ: FTEK) to Sell from Neutral after channel checks indicated the competitive landscape is much more challenging than commonly perceived for the FUEL CHEM product line. Merriman sees significant risk to shares at current levels.
  
• Citigroup downgraded shares of BHP Billiton (NYSE: BHP), Anglo American (NASDAQ: AAUK) and Rio Tinto (NYSE: RTP) to Hold from Buy on valuation following the recent rally.

OTHER DOWNGRADES:

• Lehman downgraded the specialty finance sector to Neutral from Positive; the firm downgraded American Express Company (NYSE: AXP), Capital One Financial Corporation (NYSE: COF) and Discover Financial Services (NYSE: DFS) to Equal Weight from Overweight.
  
• Lululemon Athletica (NASDAQ: LULU) was downgraded to Neutral from Buy at Goldman Sachs.
  
• JP Morgan downgraded Dollar Tree Stores (NASDAQ: DLTR) to Underweight from Neutral.
  
• Angiotech Pharmaceuticals (NASDAQ: ANPI) was downgraded to Sector Performer from Sector Outperformer at CIBC and to Sector Perform from Outperform at RBC Capital.

Capital One Financial Corp. (NYSE: COF) is scheduled to report its earnings after today's market close, and investors are driving the stock down today after bad reports around the financial sector, with competitors Bank of America (NYSE: BAC) and Washington Mutual (NYSE: WM) posting particularly bad quarters. For COF, analysts are predicting a per share loss of $0.24 for the quarter, after earnings of $1.89 per share last quarter and also $1.89 per share in the year-ago quarter. Over the last few years, COF has been unable to consistently beat estimates. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on COF.

After hitting a one-year high of $83.84 in February, the stock dropped to a 52-week low of $59.49 in August. This morning, COF opened at $65.93. So far today the stock has hit a low of $64.80 and a high of $66.90. As of 10:45, COF is trading at $65.08, down $1.82 (-2.7%). The chart for COF looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $75 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just one month as long as COF is below $75 at November expiration. Capital One would have to rise by more than 15% before we would start to lose money. Learn more about this type of trade here.

For those consumers who have any money left after they look at the falling value of their homes and the huge credit card balances, Capital One (NYSE: COF) is prepared to offer reward points for money market deposits. Who says the froth is being squeezed out of the economy?

The Rewards Money Market, as it will be called, has an interest rate of 4.65% and will offer an airline mile for every $20 on deposit. According to The Wall Street Journal, Capital One insists that the new program has nothing to do with strengthening its deposit base during a time when banks are having problems with their mortgage portfolios. It is a matter of opinion whether Wall Street will believe that.

The fact remains that "safe money" like savings account deposits are desirable for banks especially while the home lending and credit card markets are in trouble. Capital One closed its wholesale mortgage unit last month.

And, most consumers would rather have airline miles than a free toaster.

Douglas A. McIntyre is a partner at 24/7 Wall St.

The Boston Globe reports that credit card companies have been targeting subprime mortgage holders.

The evidence is stunning. Direct mail credit card offers to subprime customers in the US jumped 41% during 2007's first half, compared with the first half in 2006. By contrast, direct mail offers targeted at customers with the best credit fell 13%. During this same period, defaults on subprime mortgages rose significantly -- in June, nearly 20% of subprime mortgages were at least 60 days past due, and more than 1 in 20 were in foreclosure.

The leaders in selling higher interest rate credit cards to the financially vulnerable includes some subprime mortgage leaders. Here's a partial list:

The initial take regarding Capital One's (NYSE: COF) decision to shut its GreenPoint Mortgage unit is that it's not likely to be the last or the biggest housing- and subprime-related layoff and closure, as the housing slump continues.

Capital One cut 1,900 jobs and took a $860 million charge, or about $2.15 per share to pay for the downsizing. COF now expects to earn about $5.00 per share in 2007, down from $7.15.

Moreover, at this juncture few in Wall Street circles are willing to predict a bottom for the housing and subprime sectors; the analysis is complicated by the fact that Wall Street still does not have comprehensive data on the percentage of subprime loans that are at-risk - i.e. that stand a better than 50/50 chance of moving to the default category. Further, two hurdles faced by institutions building subprime data bases is that the definition "subprime" appears to have shifted in the past 5 years and there doesn't appear to be a universal subprime loan definition used by all lenders.

MOST NOTEWORTHY: McDonald's (MCD), Micron Tech (MU), ManPower (MAN), ASML Holding (ASML) and Wm. Wrigley Jr Co (WWY) were today's notable upgrades:

• McDonald's (NYSE: MCD) is creating shareholder value by selling 1600 under-performing restaurants and using the money for share buyback programs and dividends and was upgraded to Buy from Hold at Matrix.

• AG Edwards upgraded Micron (NYSE: MU) to Buy from Hold on the belief notebook unit growth could stay in the 25-30% YoY range over the next two quarters, while desktop growth could pick up from the 4% attained in the June quarter. Up from a low of close to $5 in February, NAND spot prices are in the $8-$9 range for an 8Gb chip over the last few weeks.

• ManPower (NYSE: MAN) was upgraded to Strong Buy from Hold at Matrix based on the growing demand for search services in Europe, Africa and North America.

• Friedman Billings upgraded shares of ASML Holding (NASDAQ: ASML) to Outperform from Market Perform and added them to their Top Picks list based on recent checks that indicate a sustainable recovery in lithography tool bookings beyond Q3.

• Bear upgraded shares of Wrigley (NYSE: WWY) to Peer Perform from Underperform citing the better-then-expected response to competitor Cadbury (CSG), UK momentum in developing markets, and likely strong performance by new gum, "5."

OTHER UPGRADES:

• Calyon raised Capital One (NYSE: COF) to Buy from Add.

• Goldman raised Darden Restaurants (NYSE: DRI) to Buy from Neutral.

• Lehman upgraded National Semiconductor (NYSE: NSM) to Overweight from Equal Weight.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).