Did Lehman go bust merely because their stock value fell?
it’s really the other way around. The company’s perceived value is reflected in the share price. News flow, rumour etc./ if negative will push the balance of buyers/sellers towards sellers, and the shares go down. This only effects the market value of the shares.There is a situation where a falling share price can adversely effect the share price.Say the company has an overdraft from the bank. This could be dependent on the share price. I think it is called a banking covenent. If the share price falls below a certain price, the overdraft is called in, or at least not renewed. It can also happen with a mortgage on commercial property.
Lehman’s stock in trade is mortgages. Instead of buying mortgages from banks or mortgage lenders, they borrow money from banks to create mortgages as their stock in trade. Then they use this stock to create mortgage related instruments to sell to their customers. When the mortgage market collapsed they become financially unsound.
