PayPal customers' cash exposed to illiquid assets
NEW YORK (Reuters) - Illiquid assets in a portfolio investing the cash of eBay Inc (EBAY.O) 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) and Citigroup Inc (C.N).
PayPal, which allows consumers to send and receive payments online, said it is confident in the quality of the portfolio's investments.
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.
BARCLAYS MASTER FUND
While it's rare for any money market fund to "break the buck," investors are learning that some of them have strong ties to the subprime mortgage crisis gripping credit markets.
Florida officials on Thursday suspended withdrawals from a state-run, short-term investment fund that has shrunk to $15 billion from $26 billion in two weeks. They made the move to delay panicked local government investors yanking money.
The nearly $1 billion PayPal money market fund invests substantially all of its assets in a $29.4 billion master portfolio run by Barclays Global Fund Advisors, a unit of Britain's third-largest bank, Barclays Plc (BARC.L).
That portfolio's illiquid assets include the commercial paper and medium-term notes of troubled SIVs. Barclays declined to comment.
In a statement, PayPal spokeswoman Amanda Pires said the PayPal fund "invests in a well-diversified portfolio of high-quality, short-term money market instruments."
"The assets deemed illiquid are well within the regulatory guidelines of 10 percent," she said. "We are confident in the quality of these investments and continue to be confident in the managers' abilities to manage the fund going forward." Continued...
