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HSBC reported on Monday that its net profits plunged nearly 96 percent year-on-year in the second quarter of 2020, while its post-tax profits for the first half dropped 69 percent year-on-year to $3.1 billion.

Even when accounting for the impact of the pandemic on the global banking industry, there is no denying that the London-headquartered multinational bank is facing an increasingly tough environment for its business development. That is because the lender is not just exposed to the pandemic's impact, but also to geopolitical factors resulting from its reported involvement in the US' political ploys.

New documents from a Canadian court reportedly showed that HSBC conspired with the US Department of Justice to set a political trap for Huawei, which directly led to the December 2018 arrest of company executive Meng Wanzhou in Vancouver. While the bank quickly denied its role in Meng's case, saying it had nothing to do with the US' decision to investigate Meng and held no hostility toward Huawei, the vague response was not deemed persuasive by the public.

Despite its recent efforts to pander to China by vocally backing the national security law for Hong Kong, many believe that the bank's precedent of bending its business principles and ethics to follow the US government's order suggests it is untrustworthy. Against the backdrop of the deteriorating China-US relationship, some observers believe there is a possibility that the bank may betray certain Chinese companies again in the future.

HSBC's case could serve as a warning to other companies that it's not that easy to rebuild trust in China. Though HSBC hasn't been subject to any punishment from the Chinese government so far, it is clear that it is now in troubled waters. Its reputation is in free fall in the Chinese market, which will not only affect its business growth, but will also exert pressure on its valuation. The plunge in HSBC's profits may be just the beginning of its woes - not because the Chinese government will take action against it, but because the Chinese market, which contributes most of its profits, may no longer trust it.

While HSBC is one of the three note-issuing banks in Hong Kong, the financial systems of both Hong Kong and the mainland would be able to deal with HSBC's absence in some extreme scenarios. After all, it is not HSBC that makes Hong Kong a financial hub, but Hong Kong and the Chinese mainland that offer the most support to its business.

Of course, we believe all regulatory actions will be justified and, given the current situation, there is no indication that China intends to drive HSBC out of its market. It is up to the market to decide the bank's fate.