* Underlying result beats expectations
* CFO: strong performance means clients not scared off
* First quarterly loss since 2008
PARIS, July 31 (Reuters) - BNP Paribas turned in a second-quarter loss on Thursday, reflecting the cost of an $8.95 billion fine for breaking U.S. sanctions, but the French bank said its strong underlying result was a sign clients had not been scared off by the affair.
The 4.317 billion euro ($5.78 billion) loss, its first since the 2008 financial crisis, was the result of a 5.95 billion euro charge for a fine that was announced on June 30.
BNP Paribas also pleaded guilty on two criminal charges and accepted a ban on certain dollar clearing activities that takes effect in January - all in a settlement with U.S. authorities for breaking U.S. sanctions against Sudan, Cuba and Iran over a 10-year period up to 2012.
It was the biggest fine to date for such violations and the largest ever U.S. fine against a European bank - one of a series of big fines handed out by U.S. prosecutors to the banking industry in recent months.
The fine overshadowed an otherwise strong and better than expected second quarter for France's top listed bank.
Its corporate and investment banking division turned in a particularly strong performance, with revenue in its capital markets division up 22 percent - a performance deemed noteworthy by Chief Financial Officer Lars Machenil.
"If you reflect back, the majority of the elements related to the comprehensive settlement announced on June 30 were in the public domain as of June," he told Reuters Insider TV in an interview.
"That basically reflects that the bank is solid and that basically its clients have been supportive over that period. They acknowledge that we regret what has happened, that we have reached a settlement, and that in particular we have taken remediation steps."
Excluding the charge, which came on top of the $1.1 billion provision already taken for U.S. litigation earlier this year and included a 200 million euro sum for remediation costs, BNP Paribas' group net profit was 1.9 billion euros compared with a mean analyst forecast of 1.53 billion according to ThomsonReuters I/B/E/S.
In the first quarter, net profit was 1.668 billion euros and a year ago it was 1.765 billion.
Revenue fell 2.3 percent as the euro zone's fragile exit from recession, record low interest rates and a fall in fixed-income trading hit both retail and investment banking.
Machenil would not be drawn on the impact of the dollar clearing ban, which takes effect in January and affects only transactions in the oil and gas business which was behind the sanctions-busting.
"That is on a sliver of our activities" he said. "It takes time to set up, and that is why we have negotiated time to do so."
Although the bank has settled, U.S. investigations are continuing into what individuals at the bank may have done.
Machenil downplayed the potential for this to overshadow the bank in future.
"The bank has reached a comprehensive settlement with the U.S. authorities," he said. "As long as the bank performs all the remediation steps, that basically settles the matter. For all other elements I would have to refer you to the U.S. authorities." (1 US dollar = 0.7468 euro)
(Reporting by Andrew Callus; editing by Tom Pfeiffer)