Gross: Pimco still doing business with Lehman

By John Parry and Vivianne Rodrigues

NEW YORK (Reuters) - Pimco, which manages the world's biggest bond fund, said on Wednesday it is still doing business with embattled investment bank Lehman Brothers Holdings Inc.

Bill Gross, chief investment officer of Pacific Investment Management Co. told CNBC television in response to a question that Pimco "...are still doing business with them."

Gross manages the $132 billion Pimco Total Return Fund, the largest bond fund in the world among those tracked by fund research company Morningstar.

"They (Lehman) have made some mistakes, but have a positive equity and some good assets to take forward," Gross said.

Although there have been questions about Lehman's need for capital, "they have access to the discount window", Gross noted. The discount window is a Federal Reserve conduit of funding available to financial institutions who need it.

Gross also said that Lehman can raise capital by selling its asset management division, including the storied Neuberger Berman unit. "We've known that Lehman had a bazooka," he said referring to plans to sell off Neuberger. "But there hasn't been much information on who will buy them. I expect over the next days or weeks to hear more about that," Gross added.

But he added that banks are not in a position to sell a lot of stock right now and that other "policy moves may be needed" going forward.

Lehman reported a much-larger-than-expected third quarter loss on Wednesday and said it plans to sell a majority stake in its investment management division and spin off commercial real estate assets in an attempt to raise capital. For details, see.

Its shares last traded down about 3.5 percent on Wednesday after a 45 percent plunge in the prior session, amid investors' growing concerns about its capital situation.

On the government's weekend takeover of mortgage finance giants Fannie Mae and Freddie Mac, Gross told CNBC that he liked the plan by Treasury Secretary Henry Paulson for the agencies because "it lowers mortgage rates and helps support housing prices."

(Additional reporting by Svea Herbst-Bayliss)

(Editing by Theodore d'Afflisio)