JP Morgan has pulled out of plans to relocate to a 1m sq ft development in the City of London and has entered into exclusive talks with Canary Wharf group to relocate to the Docklands.

The US investment bank had agreed to move to a site near the Barbican to consolidate its London offices and appointed Hammerson as development manager.

However it has decided against the move as the building it wanted could not be accommodated on the site.

It is thought it has entered into talks with Canary Wharf group to move to the. Riverside site.

Hammerson said today it would make full provision for its costs so far which amount to £17m and write them off in its half-year accounts.

The news will be a huge blow for the City which is already bearing the brunt of the credit crunch-induced downturn.