Davies has resisted a new contract offer from Bayern amid claims Real Madrid are in talks with the Canada international.
Matthaus said: "Alphonso Davies is a shadow of himself, his head is not clear.
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"The reasons for his personal crisis are due to the last few months, not to the difficult conversations and negotiations with his agent in recent weeks.
The former Bayern captain, however, says he has the 'antidote' to recover the best version of Davies: "You also have to caress the players from time to time, have a friendly conversation off the pitch, like Uli Hoeness, Jupp Heynckes, Ottmar Hitzfeld or Udo Lattek."