UPDATE 2 – Caixabank net profit increases and records Bankia gain

* Q1 underlying net profit 514 million euros, exceeding expectations

* Q1 net profit 4.79 billion euros including accounting capital gain

* Net interest income still under pressure (Added breakdown on Q1 figures)

MADRID, May 6 (Reuters) – Caixabank’s underlying net profit increased almost six-fold in the first quarter, a boost as it begins to incorporate the Bankia purchase that made it the biggest lender national of Spain.

Net profit reached 514 million euros ($ 617 million) in January-March, beating analysts’ average forecast of 342 million euros, after the bank made no provision against the COVID-19 pandemic .

In the same quarter of last year, Caixabank recorded 400 million euros in provisions related to coronaviruses.

By including 4.3 billion euros of “badwill” – a paper profit that occurs when an asset is bought below its book value – realized on the acquisition of Bankia, Caixabank’s net profit rises to 4.79 billion euros.

This was below a forecast of 7.27 billion euros, after the bank did not recognize a tax loss of 2 billion euros on deferred tax assets on the acquisition.

The overall book gain comes from Bankia’s equity of € 13.1 billion less various fair value adjustments of € 3.47 billion, leaving an adjusted book value of € 9.6 billion against a purchase price of 5.31 billion euros.

Banks across Europe are struggling to keep up with historically low interest rates, and the economic slowdown triggered by the pandemic has forced a focus on further cost cuts, including through lockdowns.

When Caixabank and Bankia announced their deal in September, they said they would aim to generate annual recurring cost savings of € 770 million by 2023. They also said they expected costs restructuring of 2.2 billion euros.

Net interest income (NII), or loan income less deposit costs, fell 0.7% in the first quarter from the same quarter last year to € 1.19 billion, in due to the pressure of extremely low interest rates.

Analysts expected the NII to hit 1.2 billion euros.

Caixabank’s income statement for the first quarter did not include profits generated by Bankia during the period, as the merger was completed at the end of March, although its balance sheet includes the assets and liabilities of Bankia.