Why Is It Called Investment Banking?

I was talking to one of my friends (he's a grad student so he doesn't know anything about investment banking or money) and was telling him that I work as an investment banking analyst. 

He asked me what we invest in, and of course I told him that we don't invest in stocks. Then he asked if we take deposits from people and I said we don't do that either. I told him we do mergers and acquisitions.

My friend told me that would be the same thing as walking into a Pizza Hut and asking for a pizza and being told that sorry we don't sell pizza, this is a mergers and acquisitions hut, which I think is a fair point. So why are we called investment bankers if we don't invest and don't bank? Maybe it's time we rebranded this industry?

 

Investment banks are called so because they primarily deal with raising capital for companies, governments, and other entities through the issuance and sale of securities. They also provide services such as mergers and acquisitions, trading of derivatives, and other financial instruments. The term "investment" reflects their focus on FACILITATING investment and capital formation rather than actual investing.

 

Because they provide banking for investments (for corporations).

 

Ngl no clue how you got so far without knowing what banking means

 

In the old days, Investment Banks would facilitate (underwrite) loans and credit to companies making an investment or acquisition. Hence the name Investment Banking. Once they realised they could make money and provide advisory services to those seeking to make investments, Investment Banking as we know today (M&A advisory) was born

 
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Historically investment banks were agents for securities issuers. They were called investment banks because they didn’t have money to lend, like commercial banks and merchant banks, they created and sold securities to investors on behalf of issuers.

In many cases, investment bankers became financial advisors to companies. They had knowledge of financial markets, which was useful for considering mergers, acquisitions and restructurings. Also they were familiar with the financial attributes of other companies.

In other cases, investment banks built up networks of institutional and retail investors. This made them more effective at issuing securities, and they were able to earn profits both from investment banking fees when issuing securities, and brokerage fees when trading them for investors.

Full service investment banks had all three operations, and naturally added investment research, proprietary trading and asset management. In some cases, the original defining business of issuing securities was dropped. But the name stayed the same.

 

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