Bank of America Merrill Lynch, Citigroup and Morgan Stanley could be downgraded by credit rating agencies as early as the first quarter of next year, driving up funding costs and potentially making it difficult for them to compete in lucrative areas like prime brokerage, according to analysts at Nomura.

In a report titled "Banks and counterparties should be prepared," Glenn Schorr and the bank analysts team at Nomura said: "We think investors should be aware of the possibility that one or more of the credit rating agencies could downgrade some of the large US banks and brokers in early 2011, as they are closer to making final decisions around both stand-alone ratings and assumed levels of government support."