Contrary to appearances, Deutsche Telekom is on the mend

Analysts reckon the company lost 25bn euros (�17bn; $27bn) last year, largely the result of drastic write-downs of the value of some of its businesses.

This would make it the third time in just a week that European loss-making title has changed hands, as France Telecom and Vivendi have both unveiled 2002 losses of more than 20bn euros.

The gathering pace of gigantic losses on this side of the Atlantic is being seen by some analysts as a sign of the fragility of once-mighty European companies.

Optimists, meanwhile, have interpreted the swathe of red ink as a wholesome bout of house-clearing before Europe gets back to business.

Losing, and winning

Indeed, Deutsche Telekom's record loss comes at a time when the firm's fortunes are reckoned to be on the up.

A year ago, the company was in crisis, as shareholders lost faith in the ability of management to push through strategy.

Since then, Deutsche Telekom has shaken up its board, and put in place one of the most dramatic cost-cutting programmes Europe has ever experienced.

The company is selling non-core subsidiaries as quickly as it can, and has already cut net debt from 64bn euros to 60bn.

On a pre-tax basis, and shorn of the effects of write-downs and other accounting adjustments, Deutsche Telekom is profitable.

Cheering losses

Whether Deutsche Telekom's loss does top the charts or not, it has one important thing in common with recent catastrophic-seeming results at France Telecom, Vivendi and others.

All are the result of revaluation of existing businesses, rather than the result of any collapse in sales or fundamental underperformance.

Telecoms and other hi-tech firms are particularly prone to these revaluations, since many splashed out on expensive acquisitions during the mid-1990s - acquisitions that are now having to be reassessed.

In general, the markets have looked kindly on mega-losses of these kinds, since they are seen as a vital reality-check ahead of any restructuring programme.

Losses have been particularly well received in cases where the management has changed since the initial blunders were made - as was the case at France Telecom and Vivendi.

A giant among dwarves

In the global league of corporate loss-making, Europe has a long way to go to catch up with the United States.

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Two years ago, some of the US's biggest corporate names began reporting staggering losses, the result of the crash in hi-tech markets in 2000.

The most high-profile casualty was AOL Time Warner, which dwarfed rivals with a $100bn loss last year.

Most of the worst of these are now in the past, analysts think.

Instead, the worst of the future red ink is likely to come from Germany, where banks and insurance companies are believed to be sitting on some vast liabilities.

Japan's next

In an even worse predicament could be Japan, where companies have tended to avoid the biggest losses, despite the country's decade-long recession.

As Japanese firms are slowly forced into long-delayed reforms, some huge losses are certain to be unveiled.

The banking sector, crippled by bad debt, should be hardest-hit.