The City of London was dealt a major blow today when investment bank JPMorgan Chase turned its back on the square Mile to move to Canary Wharf. the Wall street giant last year announced plans to build a 20-storey office block near London Wall in the heart of the City to house around 8000 investment bankers. But today it performed a devastating u-turn for the City and said it was now looking to set up its European headquarters in a new building in Canary Wharf.

"this is a big disappointment," said Peter Bennett, City surveyor for the City of London Corporation. "this is very disappointing because of our efforts to keep JP Morgan in the City if we possibly could.

"We have been trying jolly hard with them." JPMorgan initially chose the site at st Alphage House in the City with developer Hammerson prepared to build a one million square foot custom-made headquarters with four vast trading floors of 72,000 square feet each - the biggest in the square Mile.

But the bank has since decided it wants five trading floors - something the redevelopment of st Alphage House could not accommodate. it hopes to move into the Canary riverside south development in 2013. sources at JPMorgan said it became clear over the last 15 months that the site in the City would not be big enough or easy enough to develop to accommodate its current plans and for its future growth.

"We are delighted to be negotiating with Canary Wharf for a new building, which we intend to be a premier facility in the heart of a premier financial district," said Bill Winters, co-head of JP Morgan's investment bank.

Canary Wharf Group chief executive George iacobescu said: "We are very pleased indeed to have entered into this agreement with JP Morgan. the riverside site is a unique location for a world-class building of the highest quality and we are in a position to deliver JP Morgan a building that will meet their demanding present and future requirement."