Bondholders are keeping an eye on a $5 billion trouble spot that has erupted in the Washington Mutual Inc. bankruptcy case as the company jockeys for control of its former thrift's accounts.
The money is in accounts at Washington Mutual Bank, which JPMorgan Chase & Co. has acquired with assistance from federal regulators. Washington Mutual Inc. was one of the thrift's largest depositors.
Word that JPMorgan Chase is reviewing the status of the funds in its custody was unsettling to creditors who gathered Friday for a hearing in the U.S. Bankruptcy Court for Delaware in Wilmington.
"Our $5 billion is very important to us," said Thomas Lauria, an attorney for bondholders who are owed $800 million.
Creditors "don't view it as a missing $5 billion," even though the Seattle holding company finds its funds out of reach, said Mr. Lauria, the chairman of the global financial restructuring and insolvency group at White & Case LLP.
The $5 billion may be all that is left to cover holding company debts estimated to top $8 billion.
Marcia Goldstein, an attorney for Washington Mutual Inc., told the judge overseeing the bankruptcy case Friday that the holding company is entitled to the cash, but it has agreed not to write any checks against the accounts while it works out unspecified issues with JPMorgan Chase.
The troubled thrift's failure took its holding company by surprise, and it struggling to get a grip on its assets without access to accounting systems or employees, said Ms. Goldstein, who chairs the business, finance, and restructuring department at Weil, Gotshal & Manges LLP.
"We hope that we can resolve our entitlement to those deposits with JPMorgan based upon a study of the relevant information," she said.
The holding company filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code last week, 24 hours after regulators seized the thrift and sold the banking business to JPMorgan Chase.
For creditors, the money deposited at the thrift at the time is the chief hope of recovery.
Under a standstill agreement, Washington Mutual Inc. and JPMorgan Chase will give each other 48 hours' notice before taking action involving the cash, Ms. Goldstein told Judge Mary Walrath.
Also Friday, The Wall Street Journal reported that Alan Fishman, Washington Mutual Inc.'s chief executive officer; Steve Rotella, its president; and several other senior executives were set to leave the company.
Mr. Rotella had run JPMorgan Chase's mortgage business before he joining the Seattle company at the end of 2004.
Thomas Casey, Washington Mutual Inc.'s chief financial officer, will stay through December and then leave the company, the paper said.
