July 2 (Bloomberg) -- “Equity underwriting returned in spades” during the second quarter and lifted earnings at U.S. investment banks, according to Chris Kotowski, an analyst at Oppenheimer & Co.

The CHART OF THE DAY shows U.S. underwriting amounted to $122.6 billion, a ninefold surge from the first quarter, by his estimate. The total was more than double the quarterly average since 2005, based on data from Dealogic that Kotowski cited today in a report.

Revenue from investment-banking fees probably climbed about 20 percent from the first quarter because of the pickup in stock sales, the report said. Bond underwriting was relatively stable after fees more than doubled in the first quarter, he added.

“Investors should skew their financial holdings toward investment banks,” he wrote. Returns on equity, a profitability gauge, are likely to return to normal much sooner at these firms than at most commercial banks, he added.

Kotowski has “outperform” ratings on Goldman Sachs Group Inc. and Morgan Stanley, two investment banks that became bank holding companies last year, as well as Lazard Ltd., a mergers- and-acquisitions specialist. Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. are all rated “perform.”

Takeovers were “a major drag on overall fees,” according to Kotowski, who moved into his current role in March after analyst Meredith Whitney left to start her own advisory firm. “There is every reason to expect a pickup at some point in the next several quarters.”

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To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

Last Updated: July 2, 2009 10:27 EDT