FRANKFURT (Bloomberg) - Siemens AG CEO Peter Loescher told analysts in November that his plan to revive Europe's largest engineering company would have its setbacks.

A disappointment came on Monday, when Munich-based Siemens said a review of orders, some going as far back as 2004, revealed costs that would cut earnings by 900 million euros ($1.42 billion) this quarter. Siemens dropped the most since at least 1989, falling 17 percent to 66.42 euros in Frankfurt.

Siemens's investigation of its order book is a "painful but necessary step," said Mr. Loescher, who took over in July. Since then, he has replaced managers at some divisions, announced 6,800 job cuts and removed the old structure of nine Siemens units that he said was unwieldy.

"Confidence of the market has reached rock bottom," said Jochen Klusmann, an analyst at BHF Bank in Frankfurt, who cut his recommendation on Siemens to "reduce" from "strong buy" after the announcement. "Loescher may be too easy on himself when he says that these things are coming from the past."

Siemens shares rose as much as 2.73 euros, or 4.1 percent, to 69.15 euros and traded at 68.90 euros at 9.20am in Frankfurt yesterday. The stock has lost 37 percent this year.

Mr. Loescher is the first chief executive in Siemens's 160-year history to be hired from outside the firm. He took over from Klaus Kleinfeld, who left last year in the wake of a bribery probe. Investigations by German authorities and US law firm Debevoise & Plimpton found no indications of personal misconduct or that Mr. Kleinfeld had any knowledge of illegal payments, Siemens said in April. Mr. Kleinfeld is now president of Alcoa Inc.

Chief financial officer Joe Kaeser, a Siemens veteran of almost three decades, said yesterday that most costs are probably known at this stage after the latest probe of the orders. Some 600 million euros stemmed from the power division.

The engineering company reviewed fossil-power generation, transport and technology projects. Of the 900 million euros, about 200 million euros will come from the transport unit, while the technology division will have costs of about 100 million euros. The costs exclude charges to cut jobs and overruns on a Finnish nuclear power plant under construction, Siemens said.

"This is clearly a blow to investors' trust," said Thilo Mueller, managing director of MB Fund Advisory in Frankfurt. "The first very emotional reaction was `sell, sell, sell,' without differentiating."

The company reiterated its profit targets for 2010 and said it will make "definitive progress" toward these goals next year.

It is not the first time Mr. Loescher has caught investors off guard during his tenure at Siemens. In his first month in office, he announced the purchase of medical-equipment company Dade Behring Holdings Inc. for about $7 billion, which investors said was too high. The stock fell six percent that day.

Austrian-born Mr. Loescher was unknown in Germany when his appointment was announced by chairman Gerhard Cromme on May 20.

Siemens recruited Mr. Loescher from US drugmaker Merck & Co., where he was president of the global human health unit. At Siemens, he is in charge of more than 400,000 people and oversees products ranging from trains to phone networks to carmaking equipment. Revamping a company of that size will take time, Mr. Loescher said in November.

"I'm realist enough, having been part of several company transformations in my career, to know that this is a big undertaking," Mr. Loescher told analysts then. Yesterday, he said the order review means "coming to terms with our past."

In an interview on February 22, Mr. Loescher said the company probably will meet its 2008 sales and profit goals, and that he sees no sign that a global economic slowdown is affecting business. Mr. Loescher had aimed to increase sales at least twice as fast as global economic growth this year, and profit from operations to grow at least twice as fast as revenue. On Monday, he said he will give new targets in April.

"People are just totally frustrated," said Michael Bahlmann, an analyst at MM Warburg in Hamburg who said he would stick to his "buy" rating on Siemens.

Mr. Loescher, who took over after a bribery probe that became public in late 2006, realigned the company around three main units, energy, industry and health care.

The overhaul made it easier to identify responsibilities within Siemens, he said. The heads of the power generation and transport units were replaced.