Deutsche Bank AG, the German lender seeking to overhaul how itmanages risks, made a bet on U.S. inflation that puts the firm oncourse to lose as much as $60 million, people familiar with thematter said.

The trade used derivative products tied to U.S. inflation, saidthe people, who requested anonymity because the details aren'tpublic. The Frankfurt-based lender has been examining whetherDeutsche Bank traders breached risk limits on the deal, some of thepeople said. The case has been escalated to the bank's supervisoryboard, one person said.

Such a loss would be a setback for CEO John Cryan, who has beentrying to improve the lender's risk and operational controls thathave drawn scorn from regulators around the world. A risk limitviolation could indicate a weakness in the bank's oversight of itstraders in a business that earned about $270 million in the firstquarter. Just two months ago, the Federal Reserve fined the firmfor failing to ensure that traders abide by the Volcker Rule, aU.S. law that restricts lenders from using their own funds to makespeculative trades.

An official for Deutsche Bank in New York declined tocomment.

Deutsche Bank made the trade in anticipation of how clients weregoing to transact and isn't expecting the bet to reverse, one ofthe people said. Inflation traders buy and sell bonds linked toinflation, such as Treasury Inflation-Protected Securities, andother derivatives such as options.

In a separate case, the bank last year began a review intowhether it misstated the value of derivatives used to bet oninflation, known as zero-coupon inflation swaps. The bankshared its findings with U.S. authorities, Bloomberg reported.

The German lender's fixed-income pretax profit was driven by 2.3billion euros ($2.6 billion) in revenue in the first quarter, an11% increase on the year earlier. Revenue from products tied tointerest rates was “significantly higher,” Deutsche Bank said.

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