"When you sit on a creditors' committee, you are supposed to be a fiduciary for all creditors," said Lowell Peterson, a lawyer representing Enron employees. "It's difficult to have these banks wearing more than one hat."
Citigroup resigned from the creditors' committee last month, although J.P. Morgan remains a member. A spokeswoman for Citigroup referred to a recent decision by Arthur J. Gonzalez, the bankruptcy court judge, as he dismissed a motion to disqualify the law firm representing the creditors.
"It is important to state that there is no evidence before this Court that J.P. Morgan, Citibank, any other member of the Committee or this counsel has ever taken any action in this case inconsistent with any of their fiduciary obligations," Gonzalez said.
Bondholders say their protests about the role of J.P. Morgan and Morgan Stanley in the restructuring of NTL led to the fees paid the banks being reduced to US$6 million each, from US$15 million each. In April, NTL agreed to relinquish control to its bondholders after filing for bankruptcy.
Earlier this year, NTL hired J.P. Morgan and Morgan Stanley, along with Credit Suisse First Boston, to advise it on negotiations with bondholders. The bondholders say the company hired the first two banks simply because they are lenders to NTL, and asked the company to reduce the fees paid to these banks.
The bondholders declined to speak for attribution, citing their continuing work with the banks. But a recent bankruptcy court filing indicates that the fees were modified.
A spokesman for NTL, Tim Payne, declined to comment on the company's relationship with the two banks. A spokeswoman for Morgan Stanley, Judy Hitchen, also declined to comment.
Castellani, the J.P. Morgan spokesman, said the bank's dual relationship with NTL did not pose a conflict. J.P. Morgan lent to a subsidiary of NTL based in Britain, he said, while the debt being restructured was issued by a holding company based in the US.
Morgan Stanley was recently hired as an adviser to ITC DeltaCom, a West Point, Georgia, telecommunications company, which announced last month that it would seek to restructure the terms of US$350 million in bonds, said an executive close to the talks.
Morgan Stanley has a long relationship with ITC, handling both stock and bond offerings for the company as well as lending it money, according to SEC filings. A spokesman for ITC, Moss Crosby, said the company had hired bankers but would not confirm which firm had been retained.
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