It was a near-death experience, but by 1996 the bank was back in control, having chopped off far-flung global arms and legs and leaving it with little choice but to focus wholeheartedly on Australia and New Zealand.
A $3 billion expansion in the region followed, made up of takeovers of Trust Bank, Challenge Bank and Bank of Melbourne, the repurchase of the AMPAC life company from AMP and a $A200 investment in a new mortgage processing facility in Adelaide.
But while Westpac's survival as a standalone bank has defied the odds, it is still judged by analysts as only a qualified success, since the bank has still to realise its full profit potential.
Dr Morgan accepts the criticism. "I don't want to paint a glowing picture,
he says. But as far he is concerned, the only way is up in what he regards as the best banking job in Australia.
"Those were extremely hard times,
he says of the bank's difficult past, "But we've come through the furnace, we've come out much stronger.
Free of the distraction of integrating acquisitions, Westpac is poised to capitalise on its under-exploited customer base which has grown 40 per cent in the last six years to 7.3 million.
"We still haven't got full value out of our customer base because we've been so focused on those mergers,
Dr Morgan says. "The penetration, the depth of our relationship has not changed, and that's the opportunity for us.
Dr Morgan was in New Zealand last week to promote Westpac's corporate and institutional business in a series of meetings with top company and institutional customers. In Australia, Westpac already claims leadership of the institutional market, with 30 per cent share, but in New Zealand it has some way to go.
The task of boosting local institutional and corporate business has fallen to Stephen Moir, a New Zealander with extensive experience overseas who took over as head of financial markets 18 months ago and who has headed institutional banking since it was restructured last September.
Mr Moir says the division has had a boost from an influx of top talent, particularly from New Zealanders looking for new opportunities as Asia has wound down.
But more can also be expected on the retail front, with WestpacTrust continuing to be run largely as a local standalone.
The position is ironic, given that WestpacTrust is legally a branch, rather than a standalone bank, while rivals BNZ and ANZ, which are legally separate entities from their Australian owners, are increasingly being rolled into the parent operations.
"We don't intend to branchify New Zealand because we feel that local leadership of the customer interface and the whole focus of marketing needs to be left to those people who know the region and customers best,
Dr Morgan says.
Indeed, WestpacTrust remains under the control of a son of Dunedin, Harry Price, who in a recent promotion now reports directly to Dr Morgan.
However, Dr Morgan concedes that the drive to efficiency will result in some rationalisation of activities, although that does not mean that jobs and operations will necessarily always be transferred to Australia. In appropriate cases, they could be operated from New Zealand.
But one question still remains: how will Westpac fare under a possible lifting of the Australian Government's four pillars policy which blocks mergers among the big banks?
To Dr Morgan, that is a non-question since he sees little prospect of the policy being lifted, at least within his strategy horizon of three to five years. He argues that Australian antipathy to big bank mergers is even stronger than in Canada where the political risk involved cowed the Canadian Government into blocking a merger of two of its big banks.
