Goldman Sachs (NYSE: GS) earned a record $3.4 billion in the second quarter, setting a record and handily exceeding even the most optimistic forecasts.

The results were +64.5% higher than a year ago, illustrating how quickly the investment bank has recovered from the worst financial crisis since the Great Depression.

Goldman's earnings, which amounted to $4.93 a share, trumped not only Wall Street's $3.65 consensus forecast but also exceeded star banking analyst Meredith Whitney's prognostications. Whitney predicted earnings of $4.65 a share yesterday and rated Goldman's shares a "buy," the only such recommendation among the eight banks she covers.

Trading net revenue -- 10.78 billion -- increased +93% from a year ago. Goldman's underwriting business rose +21% versus second quarter 2008.

Goldman's return on equity, a key measure of an investment bank's performance, was 23% during the quarter. It now stands at 18.3% for the first half of 2009.

Reduced competition from rivals like Lehman Brothers and Bear Stearns helped bolster trading revenue. So did a renewed appetite for risk. Goldman's has "unmatched risk-taking/risk-management skills," Bank of America analyst Guy Moszkowski said.

Goldman's ability to earn billions trading may be in jeopardy. Prosecutors allege a copy of the firm's proprietary software, which enables it carry out sophisticated, high-volume trades, was stolen by a former employee. Though the software cost millions to develop, the firm fears it will lose its competitive advantage if the blueprint for its trading strategy becomes known to a competitor.

Goldman's second-quarter results included a one-time preferred dividend of $426 million that the firm paid to the government, which provided $10 billion to Goldman on Oct. 2008 as part of its efforts to bail out the struggling financial sector. The government no longer has any ownership in -- nor say over -- Goldman's business, including its executive compensation. Goldman repaid the bailout money on June 17.

Whitney predicts Goldman shares will reach $186 within 12 months, a +24% increase from current levels. Whitney was one few analyst who foresaw the financial crisis.

-- Francisco E. Bermea

Francisco E. Bermea is a writer and researcher at StreetAuthority. Francisco Holds a B.A. in economics from the University of Texas at Austin. His experience has taken him around the world, including a stint at the prestigious Pontificia Comillas in Spain, where he studied finance and econometrics. Read more...

P.S. -- Finding one great investment per month, this stock picker enjoys a 92% win rate and annualized returns of up to +90.4%, +99.6% and even +503.4%. Get her picks for your portfolio here...