Analyst Upgrades

• Deutsche Bank upgraded Southern Copper (SCCO) to buy from hold to reflect valuation and positive near-term catalysts. The firm raised its target for shares to $38 from $35.
• JMP Securities upgraded Ultimate Software (ULTI) to outperform from market perform. The firm cites the company's expanding employee base for the upgrade. The firm has a $40 target on the stock.
• Piper Jaffray upgraded Aeropostale (ARO) to neutral from underweight following the company's Q4 results and raised its target for shares to $31 from $24.
• Kennametal (KMT) was upgraded to sell from conviction sell at Goldman.
• Lifetime Brands (LCUT) was upgraded to outperform from market perform at Barrington.
• Volvo (VOLVY) was upgraded to overweight from underweight at JPMorgan.

HSBC Holdings (HBC) closed at $55.23. HBC is expected to report Q4 EPS on March 2. March put option implied volatility is at 39, April and June puts are 34; above its 26-week average of 32, according to Track Data, suggesting larger price movement.

Petrobras (PBR) closed at $41.58. PBR is expected to report Q4 EPS in early March. Crude oil futures are recently down 0.58% to $79.54 a barrel according to Bloomberg. March put option implied volatility is at 37, July is at 38; versus its 26-week average of 39, according to Track Data, suggesting non-directional price movement.

Update is by Stock Specialist Paul Foster of theflyonthewall.com

HSBC Holdings (HBC) is recently trading at $57.40 in pre-open trading, below its close of $62.07, due the uncertainty of Dubai World; the government investment company sought to delay repayment on much of its debt. HSBC December and January option implied volatility of 29 is below its 26-week average of 36, according to Track Data, suggesting decreasing price movement.

Market Vector Gold Miners (GDX) is recently down $2.02 to $50.81 in pre-open trading. Gold is recently down 2.23% to $1162.10. GDX December and January option implied volatility of 43 is below its 26-week average of 49, according to Track Data, suggesting decreasing price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

In the infamous words of Rod Roddy, HSBC Holdings (NYSE: HBC) come on down! You're next on the Earnings are Falling (or The Price is Wrong if you like).

The banking firm announced this morning that its 2008 profit fell some 70%, which is prompting the firm to halt most of its U.S. consumer lending business. HSBC's net profit fell to $5.73 billion from $19.13 billion a year ago. In North America, HSBC took a goodwill charge of $10.6 billion stemming from the restructure of the region. Taking this charge out of the equation, HSBC's profit dropped 18% to $19.9 billion. Experts had expected a pretax profit of roughly $20 billion.

Analyst upgrades:

• Canaccord upgraded Rio Tinto (NYSE: RTP) to Buy from Hold citing valuation following the severe price decline following BHP Billiton's (NYSE: BHP) dropped bid.
• UBS upgraded Itron (NASDAQ: ITRI) to Buy from Neutral citing valuation and defensive business mix.
• Jefferies upgraded shares of HealthSouth (NYSE: HLS) to Buy from Hold on valuation and maintains a $13.50 target.
• Melco PBL Entertainment (NASDAQ: MPEL) was raised to buy from Neutral at Goldman.
• PG&E (NYSE: PCG) was upgraded at Merrill Lynch to Buy from Neutral.
• HSBC Holdings (NYSE: HBC) was upgraded to Buy from Neutral at UBS.

Analyst downgrades:

HSBC Holdings (NYSE: HBC), a United Kingdom-based banking and financial services company, rallied on the Hong Kong stock exchange; following a report it held talks with China's sovereign wealth fund about a potential investment in the bank.

HBC is expected to report Q2 EPS in late July.

HBC August option implied volatility of 32 is near its 26-week average of 30 according to Track Data, suggesting slightly larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MOST NOTEWORTHY: European banks, the Paper and Forest Products sector, Kindred Healthcare and Convergys were today's noteworthy upgrades:

• Keefe Bruyette upgraded the European Banks sector to Neutral from Underweight on valuation as they see limited downside from current levels. Included in the firm's top picks are HSBC Holdings Plc (NYSE: HBC) and Banco Santander SA (NYSE: STD).
• Credit Suisse upgraded the Paper and Forest Products sector to Overweight from Underweight citing valuations and expectations that fundamentals will bottom this fall. The firm raised shares of Temple-Inland Inc (NYSE: TIN) and Smurfit-Stone Container Corporation (NASDAQ: SSCC) to Outperform from Neutral.
• Friedman Billings upgraded shares of Kindred Healthcare Inc (NYSE: KND) to Outperform from Market Perform on valuation following the recent pullback and believes the company is well-positioned to beat modest expectations over the remainder of the year. The firm raised their target to $36 from $29.
• Oppenheimer raised Convergys Corporation (NYSE: CVG) to Outperform from Perform on valuation, as they believe investors should look at the company's business lines separately. Their sum of parts valuation yields an $18 target.

OTHER UPGRADES:

• Suncor Energy Inc (NYSE: SU) was upgraded to Overweight from Neutral at JP Morgan and to Outperform from Market Perform at Friedman Billings.
• UBS upgraded BT Group Plc (NYSE: BT) to Neutral from Sell.
• Broadcom Corporation (NASDAQ: BRCM) was upgraded to Buy from Neutral at Piper.

MAJOR PAPERS:

• The Wall Street Journal reported that a federal judge said that the government had "sufficient evidence" for a jury to conclude that a conspiracy to fraudulently boost the financials of American International Group Inc (NYSE: AIG) began with former CEO Maurice R. "Hank" Greenberg. That led to a transaction that artificially inflated AIG's loss reserves.
• Citigroup Incorporated's (NYSE: C) Falcon Strategies fixed income hedge fund is down 75%, the Wall Street Journal reported, bad news for the three U.S. banks that invested in it to help increase returns on employee life insurance. One of the banks, Fifth Third Bancorp (NASDAQ: FITB), is suing Transamerica Life and Smith Barney, both of whom helped to arrange the investment, and some are now questioning whether Citigroup will be forced to give back some of the investments as they have with individual investors.
• After it stopped offering some mortgages last month because it was swamped by volumes of new applications, the Financial Times reported that First Direct, a unit of HSBC Holdings Plc (NYSE: HBC), has resumed lending to new customers. The bank said it has continued to receive "significant interest" in its mortgages from existing customers.

OTHER PAPERS:

• In an effort to raise capital from shareholders, the Telegraph reported that Barclays Plc (NYSE: BCS) is considering a takeover bid for a rival in the U.S. or UK. Sources believe Barclays may attempt to acquire an investment bank, a struggling bank or a deal in a fast-moving economy. Potential names mentioned include UBS AG (NYSE: UBS) and Lehman Brothers Holdings Inc (NYSE: LEH).

MAJOR PAPERS:

• Lockheed Martin Corporation (NYSE: LMT) is expected to beat out The Boeing Company (NYSE: BA) for an approximate $1.8B contract to from the U.S. Air Force to build a new generation of navigation satellites, the Wall Street Journal reported.
• According to the Wall Street Journal, former American International Group Inc (NYSE: AIG) CEO Maurice R. "Hank" Greenberg is pressing the troubled insurer to turn the company around. He says that he and other major shareholders have "deep concern about the persistent and seemingly endless destruction of value at AIG."
• Hybrid Capital Second, a Morgan Stanley (NYSE: MS) investment vehicle, increased its stake in internet start-up Livedoor to 18.15% from 12.76% in March, the Financial Times reported, superseding the company's founder, Takafumi Horie.

OTHER PAPERS:

• After it incurred $3.2B of bad debts in the first three months of the year, the Telegraph reported that Knight Vinke, an HSBC Holdings Plc (NYSE: HBC) shareholder, has renewed calls for the bank to shed its U.S. consumer finance business.

MAJOR PAPERS:

• The Wall Street Journal reported that a spokesperson for New Corporation (NYSE: NWS) said the company has dropped out of the bidding for Tribune Co's (NYSE: TXA) Newsday. This leaves Cablevision Systems Corporation (NYSE: CVC) as the apparent winner of the auction.
• According to people familiar with the matter, the Wall Street Journal reported that American International Group Inc's (NYSE: AIG) airplane-leasing unit is considering a split from the company. The people said International Lease Finance Corp have grown "increasingly concerned" the company will be hurt by AIG's financial troubles.
• Royal Dutch Shell Plc (NYSE: RDS.A) and Spain's Repsol YPF SA (NYSE: REP) are pulling out of one of Iran's biggest gas projects, the $10B-plus development of phase 13 of South Pars, the world's largest gas field, the Financial Times reported.

WEB SITES:

• Bloomberg reported that HSBC Holdings Plc (NYSE: HBC) set aside a smaller-than-forecast $3.2B for bad loans in the U.S. The bank also said its Q1 profit was higher than Q107.

The proposed Super SIV may end up being considerably smaller than the original outline, as banks and other SIV-owning institutions either write-down or find other ways to dispose of problematic SIV assets, The New York Times reported Monday.

Conceptualized following a request from the U.S. Treasury, the Super SIV is designed to facilitate the orderly sale of high-risk packaged mortgage loans and assets held by SIVs, but not to rescue those SIVs.

As presently configured, beginning in January/February 2008 the Super SIV will lead a coordinated, gradual purchase-and-resale of these assets, which, officials say, will avoid a "mad rush to the door" of SIV asset sales. The latter would further depress prices, and create another round of credit market turmoil, with negative consequences for the U.S. economy. The Super SIV will raise money from financial institutions to fund itself.

MAJOR PAPERS:

• Due to accelerating losses at its American consumer-lending unit, HSBC Holdings PLC (NYSE: HBC) said it would take $3.4B in charges during its Q3, the Wall Street Journal reported. Despite the charges, the company said its Q3 operating income was up compared with the prior year due to revenue growth in the group.
• NYSE Euronext Inc (NYSE: NYX) CEO John Thain is not on the first short list of candidates being considered for the Citigroup Incorporated (NYSE: C) CEO position, according to an inside source, the Financial Times reported.

OTHER PAPERS:

• Lululemon Athletica Inc (NASDAQ: LULU), a standout performer on Wall Street, is reportedly under fire for potentially false claims of its VitaSea clothing line, which the company says is made from seaweed fiber supplied by SeaCell. According to lab tests, the New York Times reported there was no significant difference in the mineral levels between regular cotton T-shirts and Lululemon's VitaSea fabric.

MOST NOTEWORTHY: The U.S. banking sector, HSBC Holdings, Trans World and Mips Technologies were today's noteworthy downgrades:

• CIBC downgraded the U.S. Banks sector to Underweight from Market Weight as they see another leg down as investors shift focus away from write-downs to the impact the write-downs will have on risk-weighted assets and capital ratios.
• Morgan Stanley downgraded shares of HSBC Holdings Plc (NYSE: HBC) to Equal Weight from Underweight, as they believe the company may have to set aside more money for bad loans in the U.S.
• B. Riley downgraded shares of Trans World Entertainment Corporation (NASDAQ: TWMC) to Neutral from Buy, as they believe the downside risk should the Bob Higgins acquisition proposal fall through outweighs the potential upside should the bid be raised or should another bidder emerge.
  
• B. Riley also downgraded Mips Technologies Inc (NASDAQ: MIPS) to Neutral from Buy following the company's Q1 results to reflect the company's deteriorating balance sheet and licensing business softness.

OTHER DOWNGRADES:

• Lehman downgraded Federal National Mortgage Association (NYSE: FNM) and Federal Home Loan Mortgage Corporation (NYSE: FRE) to Equal Weight from Overweight.
• Bear Stearns downgraded Wyeth (NYSE: WYE) to Peer Perform from Outperform.
• Concur Technologies Inc (NASDAQ: CNQR) was downgraded to Market Perform from Outperform at Piper.
• Citigroup downgraded shares of E-Trade Financial Corporation (NASDAQ: ETFC) to Hold from Buy.

Citigroup Inc. (NYSE: C) volatility at nine-year highs on chatter of potential spin-offs:

Investor unhappiness with Citigroup's recent sell off has resulted in a larger chorus for Citigroup to consider spin-off options. Citigroup's Smith Barney unit has been frequently mentioned as a potential spin-off. Telegraph.co.uk said "banks including JPMorgan Chase & Co. (NYSE: JPM), HSBC Holdings plc (ADR) (NYSE: HBC), and Morgan Stanley (NYSE: MS) are being touted as possible buyers if Citigroup's management decides to offload assets." Citigroup was recently up 15 cents to $33.03. Citigroup call option volume of 135,047 contracts compares to put volume of 101,613 contracts. Citigroup November 32.5 straddle is priced at $2.55. Citigroup December option implied volatility of 56 is above its 26-week average of 29 according to Track Data, suggesting larger price risks.

International Business Machines Corp (NYSE: IBM) volatility elevated after Sharp two-day sell off after Cisco Systems, Inc. (NASDAQ: CSCO) outlook:

IBM was recently down $4.83 to $101.27. IBM call option volume of 20,665 contracts compared to put volume of 25,200 contracts. IBM November 100 straddle was priced at $4.90. IBM December option implied volatility of 33 was above its 26-week average of 24 according to Track Data, suggesting larger price risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

HSBC Holdings (NYSE: HBC) is the latest financial company to drop out of the subprime lending game in the U.S. (and it is a game). HSBC, which is Europe's largest bank and has a large presence in the U.S., said that it would jettison 750 jobs from its Decision One Mortgage unit, take a hair under $1 billion in charges and write-downs, and completely exit the subprime market in the U.S. due to the business no longer being sustainable. Note to HSBC: duh!

In my view, the subprime mess was produced by the loan industry, from the top brass to the commission-based lenders who lined up ignorant citizens to borrow tons of money on foolish terms and with so little homework that "F" students would have cheered. Did shareholders of these companies complain when the lenders were raking in profits? Nope. Are they crying now that entire companies are going belly-up or are exiting the business while taking large losses? Sure they are.

In an inspiring moment of corporate-speak, HSBC Holdings group chief exec Michael Geoghegan stated that, "It's no longer sustainable and not the right place to allocate capital in the future." But it was obvious years ago that lending money and setting up short-term financing on top of a house made of cards was not the right place "to allocate capital." Billion-dollar lesson learned, HSBC.