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Deutsche Bank won't go belly up, but it's not out of the woods: Short seller

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Deutsche Bank won't go bankrupt, but the concerns about the German lender that recently sent the stock to record lows are about profitability, said David Benamou, chief investment officer at Axiom Alternative Investments, which is short the stock.

In a CNBC interview Friday, Benamou called Deutsche Bank a "dinosaur" that grew in the early 2000s and stayed big. "They didn't adapt" to tighter regulations after the 2008 financial crisis, and "they're paying the price," he said on CNBC's "Squawk Alley."

Axiom, based in Paris and London with about $560 million in assets under management, went short on the stock in February, Benamou said. "We were sure they would suffer a lot essentially due to the restructuring costs and also litigation."

After hitting record lows on Thursday, shares of Deutsche Bank that trade in the U.S. were sharply higher Friday on reports it may be near a settlement with the Justice Department.

Deutsche Bank shares that trade in Europe mirrored Wall Street's declines early Friday, but recovered late in the session.

The stock has been cut in half this year, with losses accelerated in recent weeks, as concerns mount over reports of hedge fund selling and a possible DOJ penalty that could reach $14 billion to settle a number of investigations related to mortgage securities.

"It's clearly a stock in which you could turn neutral in probably three to six months, but not before," Benamou said.

"You could step into the stock if they only start to deliver on the restructuring plan," he continued. "You will need probably eight to 12 months to see that. It's much too early."

Deutsche Bank would be the first European bank to settle on residential mortgage-backed securities with the DOJ. Others on the DOJ radar include Barclays, Credit Suisse, Royal Bank of Scotland and UBS.

In January, Goldman Sachs agreed to pay more than $5 billion to settle allegations of misleading mortgage bond investors. The following month, Wells Fargo reached a $1.2 billion settlement over mortgage fraud charges.

Bank of America agreed to nearly a $16.7 billion settlement in 2014, while JPMorgan settled for $13 billion in 2013.

— Reuters contributed to this report.