PayPal customers' cash exposed to illiquid assets

Fri Nov 30, 2007 8:53 PM GMT

By Tim McLaughlin

NEW YORK, Nov 30 (Reuters) - Illiquid assets in a portfolio investing the cash of eBay Inc (EBAY.O: Quote, Profile , Research) customers surged 39 percent in the third quarter, exposing them to a larger chunk of troubled corporate debt, U.S. regulatory filings show.

The money market fund of PayPal, eBay's online pay service, invests cash parked by Internet shoppers in a portfolio that holds $1.63 billion in illiquid assets, or 5.5 percent of total holdings, according to the filings. That's up from $1.17 billion, or 4.6 percent of holdings, in the second quarter.

The illiquid tag means the named assets, or some of them, can't be sold for the value they carry in the portfolio. Besides illiquid assets, the PayPal fund is invested in a portfolio that includes short- and medium-term paper issued by corporate debt vehicles.

 

Those vehicles, known as structured investment vehicles (SIVs), have been targeted for emergency multibillion-dollar bailouts by some of the world's largest banks, namely HSBC Holdings Plc (HSBA.L: Quote, Profile , Research) and Citigroup Inc (C.N: Quote, Profile , Research).

PayPal, which was not available to comment, allows consumers to send and receive payments online.

Its money market fund is popular with customers seeking better returns on cash idled between transactions. Customers can either sweep the cash into the fund or a federally insured bank account. To attract money to the fund, PayPal said it pays some fund-related costs to help boost yields for customers.

Money market funds are seen as safe because of their long track record of keeping their shares' net asset value at $1.   Continued...