Fears that JP Morgan would quit London in protest at restrictions on bankers' bonuses melted away this morning, when it announced plans to move into the former headquarters of Lehman Brothers.

JP Morgan is spending £495m to acquire 25 Bank Street in Canary Wharf, the home of Lehman's European arm before its spectacular collapse in September 2008. This ends months of uncertainty over the investment bank's plans, and means it will not move its 11,000 London-based staff overseas.

"This acquisition is a long-term investment and represents part of our continued commitment to London as one of the world's most important financial centres," said Jamie Dimon, JP Morgan's chief executive.

At present, JP Morgan's staff are scattered across several offices in London. It plans to move into 25 Bank Street, which has more than 93,000 sq metres of floor space, in 2012.

JP Morgan's decision was welcomed by the UK government, as it continues to hold talks with the banking industry over its pay policy. Almost a year ago, Dimon warned the then-chancellor Alistair Darling that his 50% tax on banking bonuses was unfair, and might force the company to quit the UK.

The City minister, Mark Hoban, described JP Morgan's decision as "excellent news".

"Today's announcement demonstrates the long-term commitment of JP Morgan to London and will help to ensure the City's position as the pre-eminent global financial centre," said Hoban.

Boris Johnson, mayor of London, said keeping JP Morgan in the UK capital was "a tremendous coup" that should help maintain London's role as a "banking powerhouse".

"Banking is one of the few global industries in which we truly excel. The City contributes about 9% of Britain's GDP, and a whole wealth of professions and trades depend upon it either directly or indirectly," said Johnson.

However, the decision also means that JP Morgan will not move into two new skyscrapers at Canary Wharf. It had originally been planning to construct a £1.5bn European headquarters at Riverside South, but this development was suspended once JP Morgan first indicated it was reconsidering the plan. JP Morgan had already paid £237.9m for this Docklands site, and will hand over another £76m to break the contract.

Work at Riverside South will now start again, bringing the site up to street level. This should mean that the site is still developed in the future. Under the original design by Sir Richard Rogers the two tower blocks would have been connected together at the lower levels, creating one of the largest offices in Europe.

Canary Wharf Group, which owned 25 Bank Street, said JP Morgan's presence in Docklands would benefit local areas such as Tower Hamlets.

George Iacobescu, chief executive of CWG, said: "This decision secures London as the European headquarters for JP Morgan and it is a huge boost for the UK as the economic recovery starts." Bank remuneration policy remains a hot topic for the government. The business secretary, Vince Cable, and the chancellor, George Osborne, were due to meet UK bankers today but the meeting was postponed because of the travel disruption caused by the snow.