UPDATE 3-Kaupthing Q1 net surges from Q4 on cost cutting

(Adds CEO comments, merger discussions, updates shares)

By Adam Cox

STOCKHOLM, April 30 (Reuters) - Iceland's Kaupthing (KAUP.IC: Quote, Profile, Research) on Wednesday posted first-quarter net profit nearly twice that of the prior three months as the bank slashed costs and said it was ready to weather even a lengthy market crisis.

Iceland's largest bank earned a net profit of 18.7 billion Icelandic crowns ($251 million), almost double the 9.8 billion crowns earned in the fourth quarter and nearly matching the 20.3 billion crowns of a year earlier.

At 21.6 billion crowns in the quarter, operating expenses fell 17 percent from the fourth quarter when measured in euros, but were up 21.8 percent from a year earlier.

"Operating expenses dropped significantly between quarters and this trend will continue," Kaupthing Chief Executive Hreidar Sigurdsson said in the results statement.

Speaking to Reuters afterwards, the executive said more cost cuts were on the way. "We want to take it down a further 10 percent in the next quarter," he said.

Sigurdsson said in the statement Kaupthing was ready to cope with any protracted market crisis and that management had made keeping the bank liquid a top priority.

As the global credit crunch has jacked up the price of risk and sent investors scurrying for safe bets, Iceland's banks have been hit hard by fears they took on too much debt during their rapid overseas expansion. This has increased funding costs and crimped growth opportunities.