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Deutsche Bank’s shareholders leapt on its full-year results last week with all the gusto of a man in the desert throwing himself at an oasis. But is the improvement of which chief executive Christian Sewing boasted real, or just a mirage?

Put another way, has Germany’s largest bank really freed itself from its toxic past and found a way to live in a milk-and-water world of low interest rates and dull-but-worthy credit intermediation?

At first glance, it doesn’t appear so.

The bank made a net loss of 5.3 billion euros ($5.9 billion) in the year, a fifth straight annual shortfall that brought aggregate losses since 2015 to over 13 billion euros. It still faces margin-crushing negative interest rates, a sharply slowing global economy and high and inflexible costs especially in its German branch network. Even if the bank were to hit all of its targets in the next three years, it still wouldn’t cover its cost ofequity, which analysts typically estimate at around 10%.

But at second glance, well, maybe. The “bad bank” into which Sewing shunted 288 billion euros’ worth of historic junk last July is winding itself down faster than expected, and at a more palatable cost to shareholders than forecast. At the “core bank,” the businesses that will become the nucleus of the future Deutsche Bank all posted increases in underlying revenue in the fourth quarter. Investors in particular cheered the performance of its asset management arm.

That upturn appeared to answer the question that has consistently dogged the bank’s management in recent years: how to cut a bloated cost base without also cutting the source of vital revenue?

Shedding businesses, cutting staff

When he took over in 2018 from John Cryan, Sewing snipped tentatively around the edges of Deutsche’s notoriously unprofitable investment bank. After a year of little to no improvement, he was forced to take more radical action. He dumped most of the bank’s business with hedge funds, exited global equities and vowed to slash the bank’s 91,000 payroll by a quarter over three and a half years.

Investors didn’t like it to start with, pushing the stock down over 7% on that day in July. But after last week’s numbers, they were coming around willingly enough. A flurry of analyst upgrades followed from JPMorgan to Royal Bank of Canada and Societe Generale. Deutsche Bank stock, already the best performing stock in the sector in Europe this year, jumped another 4.3% to a 14-month high.

Shares closed Tuesday up a modest 0.25% in Frankfurt.

“We can quite justifiably say that we are on the right path, and that our strategy is gaining traction,” Sewing told a press conference on Thursday.

Its regulators appear to agree: the European Central Bank has cut its capital requirement by 25 basis points for next year, and Deutsche will get a further 50 basis points in relief from 2021, after the Financial Stability Board cuts the surcharge it imposes on banks like DB—regarded as “global systemically-important bank”—to 1.5% from 2.0%.

Both moves acknowledge the progress made by Sewing and his team in de-risking what the International Monetary Fund once dubbed the biggest source of systemic risk in the global financial sector. They also create leeway for Sewing to take short-term hits on restructuring without needing to call on shareholders for more capital. The common equity tier 1 ratio—a key measure of financial strength—rose to 13.6%, well above the 13% it had guided for.

Piling on restructuring costs

One thing that leaps out from last week’s numbers is the sheer volume of adjustments needed to turn a reported loss in Q4 into an ‘adjusted’ profit. “Transformation charges, goodwill impairments, restructuring and severance expenses” were all rolled out as factors behind the high one-offs in the final quarter.

The difference between a ‘transformation charge’ and a ‘restructuring expense’ wasn’t clear. What was clear was the bank’s determination to cram as many of the restructuring costs as possible into this quarter’s results, so as not to pollute next year’s. But while the bank has moved as fast as it can to write down the affected asset values, it has only booked 40% of the expected severance costs over the period—and the number of people who actually left the bank last year was only around 25% of the total expected departures.

Investors can be forgiven for thinking they’ve been here before with Deutsche. Like Annie singing ‘Tomorrow,’ the turnaround with Deutsche Bank is always a day away: the cost of returning to profit has a habit of rising, and the bank’s original estimate of 7.2 billion euros in restructuring costs by 2022 had already risen by an additional 400 million euros. What toll could a lengthy coronavirus-, tariff- or Brexit-related disruption to the German banking sector add to that?

Moreover, in among last week’s good numbers—like a 31% rise in revenue from bond trading, an old powerhouse unit rediscovering its mojo—there were some rank bad ones. Underlying revenue at the private bank, which consists mainly of German retail branches, dropped 2%. And global transaction banking, which Sewing relentlessly talked up in his first year, saw revenue fall 6%. Meanwhile, analysts didn’t care for a 2% drop in commercial banking revenue—which happened despite a solid rise in loan volumes.

Standard & Poor’s Ratings Group warned that, at such a late stage of the economic cycle, “a substantial rise in risk appetite (at Deutsche) is unlikely to lead to a sustainable rise in profitability.”

Nor have the governance clouds that hung around the twin towers in Frankfurt for the last decade entirely lifted. Questions about the bank’s relationship with Donald Trump before his election in 2016 continue to linger. And, in the last two weeks alone, there have been reports of bank employees resorting to questionable tactics to win the business of Saudi and Chinese customers (a key development appears to be that the bank is now doing better at unearthing such things itself).

Ultimately, Sewing still has work to do to convince his investors that this turnaround is for real. Citigroup analyst Andrew Coombs wrote after the results that the stock’s performance this year has been due largely to a short squeeze, which in turn was driven by factors outside the bank’s control—most notably, the general pickup in bond yields as 2020 opened to an admittedly short-lived burst of optimism.

Like many others, Coombs think the market has now got ahead of itself.

His upgraded target price of 6.90 euros remains 18% below today’s 8.16 euros closing price.